Monday, June 9, 2014

Temporary transfer of copyright in films doesn’t amount to sales; levy of ST on it is constitutionally valid: HC


Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not "sale or deemed sale of goods" and, therefore, levy of service tax on Temporary transfer of copyright in film under section 65(105)(zzzzt) is constitutionally valid.

Facts:


a)The assessee challenged the vires of Section 65(105)(zzzzt) of the Finance Act, 1994 on ground that ‘temporary transfer of copyright’ amounted to 'sale' or 'deemed sale' of goods.

b)The assessee argued that temporary transfer of copyright was a "transfer of right to use goods" which was to be deemed as sale in terms of Article 366(29A), read with Entry 54 of List II of the Constitution and, therefore, it was not a service.

c)The revenue argued that clause (29A) of Article 366 of the Constitution was inserted to give extended meaning to the definition of sale and that Parliament had not divested its power to levy service tax.

d)The issue before the High Court was: Whether section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright was ultra vires the Constitution?

The High Court held in favour of revenue as under:

1)Variant modes of business transactions between producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) were not "sale of goods" to fall under Entry 54 List II or Entry 92A List I;

2)By resorting to Entry 97 of List I Residuary Entry to levy service tax, Parliament was within its legislative competence to levy service-tax on residual items and Section 65(105)(zzzzt) was not ultra vires the Constitution;

3)Temporary transactions of copyrights or permission to use or enjoyment of copyright could not be brought either under Entry 54 of List II or Entry 92A of List I;

4)In case producer of films grants a few prints of film to distributor for exhibition purposes and distributor is not free to use prints for other purposes, viz., satellite, TV, etc., then, there is temporary transfer of copyright in films, which is a service; it does not amount to sale or deemed sale under 'transfer of right to use goods';

5)Temporary transfer of copyright in film amounted to rendering of service, thus, levy of service tax on it under section 65(105)(zzzzt) was constitutionally valid – AGS ENTERTAINMENT (P.) LTD. V. UNION OF INDIA [2014] 46 taxmann.com 92 (Madras)
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