CESTAT: No Service Tax on Permanent Transfer of Film Copyrights Under Copyright Services
Pranav B Prem
The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Justice P.A. Augustian (Judicial Member) and Mrs. R. Bhagya Devi (Technical Member), has ruled that service tax cannot be levied on the permanent transfer or assignment of copyright of a cinematographic film produced by the assessee. The Tribunal allowed the appeal filed by M/s. Play House Motion Pictures Pvt. Ltd., holding that the activity in question did not attract service tax under either the Business Auxiliary Services (BAS) category or under the Copyright Services category as alleged by the Revenue.
The appellant, engaged in the business of cinematographic film production and distribution, had produced a Malayalam feature film titled “Jawan of Vellimala”. In 2012, the company executed a perpetual assignment agreement transferring all copyrights related to the film to a television channel. The Revenue treated this transaction as a taxable service and issued a Show Cause Notice demanding service tax for the financial year 2012–13. The notice alleged that the appellant had failed to discharge service tax liability under both Business Auxiliary Services and Copyright Services as defined under the Finance Act, 1994.
The appellant contested the demand by submitting that the transaction was a permanent transfer of copyright, which amounted to a transfer of property and not a provision of service. It was further submitted that the Revenue failed to invoke any specific clause under Section 65(19) of the Finance Act, 1994 to justify the classification under Business Auxiliary Services. The appellant contended that in the absence of a precise legal foundation, the demand was vague and legally unsustainable. Moreover, the income from the transaction had been duly recorded in the books of accounts and reported in the Income Tax returns, negating any allegation of suppression or willful intent to evade tax.
In addressing the primary question of whether the activity was taxable, the Tribunal noted that the agreement dated 1st November 2012 executed between the appellant and the television channel was for the perpetual assignment of copyright in the film. Relying on Section 18 of the Copyright Act, 1957, the Tribunal observed that a permanent transfer of copyright constitutes a transfer of title in property and cannot be equated with the “temporary transfer” or “permitting the use or enjoyment” of copyright, which alone is taxable under Section 65(105)(zzzt) of the Finance Act.
The Tribunal further referred to the CBEC Circular No. 109/3/2009-ST dated 23.02.2009, which clarifies that screening of a movie is not a taxable service unless the distributor leases out the theatre and the theatre owner receives a fixed rent. The Tribunal observed that there was no allegation or evidence to suggest that the appellant had leased out any theatre or received fixed rent from theatre owners. Hence, the activity could not be taxed under Business Auxiliary Service either.
On the issue of limitation, the Tribunal held that the extended period of five years under Section 73(1) of the Finance Act was not invocable. The Tribunal emphasized that the demand arose from a purely interpretational dispute, and the appellant had not indulged in any suppression of facts, fraud, or willful misstatement. It also pointed out that the very nature of the transaction—being a registered copyright assignment agreement—was available on record, and the Revenue could not claim to have discovered it belatedly.
The Tribunal found that the adjudicating authority’s decision to uphold the demand without carefully considering the nature of the transaction and without satisfying the legal preconditions for invoking extended limitation was legally flawed. The Tribunal, therefore, held that both on merits and limitation, the demand could not be sustained. Accordingly, the appeal filed by the assessee was allowed, and the impugned order passed by the adjudicating authority was set aside in full. The Tribunal’s ruling reaffirms the settled legal position that permanent transfers of intellectual property rights such as copyright do not constitute taxable services, and cannot attract service tax under the guise of Business Auxiliary Services or Copyright Services.
Appearance
Counsel for Appellant/ Assessee: M.S. Nagaraja
Counsel for Respondent/ Department: Rajesh Shastry
Cause Title: M/s Play House Motion Pictures Private Limited V. The Commissioner of Central Excise, Customs and Service Tax
Case No: Service Tax Appeal No. 20876 of 2016
Coram: Justice P.A. Augustian [Judicial Member], Mrs. R. Bhagya Devi [Technical Member]
