A note on problems being faced by the Film Distributors w.r.t Custom
Duty on Royalty/ distribution rights of features Theatrical exhibition/
Video & Television
Cinematograph films are classifiable under heading
37.06 attracting a tariff rate of 25% ad valerom. On import of foreign
features, film producers/ distributors charge a price per print of
cinematograph film as well as royalties/ distribution rights fee including
sharing of profits.
Till 1996 customs duty on cinematograph films was
only charged on the print and freight cost as per Notification No.
205/77-Cus. On August 1, 1996 this
notification (205/77-Cus) was withdrawn.
At present, the assessment is being done as per Rule
9 (1) (c) of Customs Valuation , that states that the royalties and license
fees payable as a condition of sale of the imported goods, is to be included
for arriving at the transaction value.
Since the withdrawal of notification no. 205/77 customs dated 24th
September, 1977, the customs authorities are applying Rule 9 (1) (c) to arrive
at the value of the transaction and charging duty on the same. The assessable
value includes cost of prints and material imported as well as royalty/ license
fee/ minimum guarantee/ advance / profit sharing / commission etc paid to the
foreign distributor/ producer for acquiring the distribution rights.
It may be noted that many of these fees are payable
depending on the success of the films in India and the payments are required to
be made after netting of all the expenses incurred. The customs authorities at the time of clearing the prints are
not clear about these uncertain payments to be made in future, but are
insisting on adding ad-hoc amounts to the value of film prints. This has resulted in levying customs duty in
a very arbitrary manner and leads to endless
litigation on the interpretation of GATT Valuation Rules as to whether the fees
paid for distributing the fees paid for distributing the film in India is
required to be added to the print cost.
The problem is further compounded by the fact that
the Indian Distributors bundle up the royalty fees and other payments for the
right to exhibit the films not only in India, but also in other neighboring
countries such as Bangladesh, Sri Lanka, Bhutan, Nepal, Pakistan, etc. in this perspective, it becomes extremely difficult to apportion the payments of
royalties or distribution rights etc. amongst these countries and arrive at the
value of the imported cinematograph film.
These royalty payments also include rights for
satellite and free television. Here we
have an opportunity to lease the rights to some satellite TV Channels that beam
into India from abroad and earn foreign exchange. Levying duty on these rights is also baseless.
As opposed to custom rule prevalent in India, other countries like USA and countries in EUROPE either do not levy custom duty on Indian Films being imported in their countries or if these films are subject to payment of custom duty, the same is levied only on the cost of film prints.
We reliably understand that the Ministry of
Information and Broadcasting, The National Film Development Corporation and the
Office of Commissioner of Special Valuation Department, Mumbai have all
recommended for removal of Custom duty on Royalty amount in various forums.
Further, the revenue accruing to the Government on
account of charging custom duty on royalty amount is an extremely insignificant
amount which can increase substantially on account of Entertainment Tax and
other similar revenue streams if the importers are encouraged to import freely
without paying custom duty on the Royalty amount.
Hope the above issue gets its due attention and the
import duty on the royalty amount is abolished for feature films being imported
into India, at the earliest.
N254 EXCISE LAWS TIMES [VOL. 85]
In exercise of the powers conferred by sub-section (1) of
section 25 of the Customs Act, 1962 (52 of 1962, sub-section (3) of section 3
of the Customs Tariff Act, 1975 (51 of 1975) or sub-item (6) of heading No.
98.01 of the First Schedule to the said Customs Tariff Act, as the case may be,
the Central Government, being satisfied that it is necessary in the public
interest so to do, hereby rescinds the following notifications of the
government of India in the Ministry of Finance (Department of Revenue and
Banking, Department of Revenue and
Insurance or Department of Revenue, as the case may be), specified in the
column (2) of the Table hereto annexed :
Provided the notifications of the Government of India in the
Ministry of Finance (Department of Revenue and Banking, Department of Revenue
and Insurance or Department of Revenue, as the case may be), specified in
column (2) of the Table hereto annexed :
Provided that the notifications of Government of
India in the Ministry of Finance (Department of Revenue) nos. 123/95 – Customs
and 124/95 Customs, both dated 7th August, 19945, mentioned at S.
Nos. 196 and 197 in the said table shall stand rescinded on and from the 1st
day of August, 1996
(1)
(2)
1.
210/63 – Customs dated the 7th September, 1963
2.
37/72 – Customs, dated the 18th March, 1972
3.
157/76 – Customs, dated the 2nd August, 1976
4.
159/76 – Customs, dated the 2nd August, 1976
5.
175 – Customs, dated the 2nd August, 1976
6.
208/76 – Customs, dated the 2nd August, 1976
7.
302/76 – Customs, dated the 2nd August, 1976
8.
312/76 – Customs, dated the 2nd August, 1976
9.
313/76 – Customs, dated the 2nd August, 1976
10.
101/77 – Customs, dated the 1st July, 1977
11.
143/77 – Customs, dated the 16th July, 1977
12.
205/77 – Customs, dated the 24th September, 1977 **
13.
218/77 – Customs, dated the 7th October, 1977
14.
245/77 – Customs, dated the 19th November, 1977
15.
32/78 – Customs, dated the 16th February, 1978
16.
68/78 – Customs, dated the 25th March, 1978
17.
110/81 – Customs, dated the 10th April, 1981
18.
166/81 – Customs, dated the 29th June, 1981
19.
199/83 – Customs, dated the 4th July, 1983
** This notification (along with all subsequent
amendments) was Rescinded effective July 1996.