2013 (7) TMI 23 - HC - Service Tax

Temporary transfer or permitting the use or enjoyment of any copyright - except the rights covered under sub-clause (a) of sub-section (1) of Section 13 of the Indian Copyright Act for the period from 1.7.2010 to 31.06.2012 and the period from 01.4.2013 onwards since the levy of service tax on Copyright Services (Section 65(105)(zzzzt) is revived from 1.4.2013 with the exception of Section 13(1)(a) or Cinematograph films for exhibition in a cinema hall or a cinema theatre - assessee contested that Copyright is considered as transfer of right to use the goods, which is a sale in terms of Article 366(29A) read with Entry 54 and not a service - Assessee s contention that Temporary transfer or use or enjoyment of the copyright is a sale of goods falling under Entry 54 of List II - Held that - Section 65(105)(zzzzt) seeks to tax viz., temporary transfer or permitting the use or enjoyment of copyright which is a service provided by the producer/distributor/exhibitor. Service Tax is a levy not on the transfer of right to use the goods as described under Article 366(29A) sub-clause (d); but on the temporary transfer or permitting the use or enjoyment of the copyright as defined under the Copyright Act, 1957. In the case of Sales Tax Act, there would be transfer of right to use the goods . Whereas under the Service Tax Act what is levied is temporary transfer/enjoyment of the goods. The pith and substance of both enactments are totally different. Temporary transfer or permitting the use or enjoyment of the copyright is not within the State s exclusive power under Entry 54 of List II. Therefore, there is no merit in the contention that the taxable event provided under Section 65(105)(zzzzt) is covered by Article 366(29A). The impugned levy is a tax on service and in terms of the definition of taxable service under section 65 (105)(zzzzt), it means any service provided or to be provided to any person by any other person and two types of such services are contemplated one being transferring temporarily and the other being permitting the use or enjoyment of copyright. Therefore, the impugned levy is not a levy of tax on the transfer of the right to use the goods , but, on the service provided or to be provided for transferring temporarily or permitting the use or enjoyment of any copyright, except the rights covered under section 13(1)(a) of the Copyright Act. It is a levy which is distinct from the levy under Entry 54 of List II or Entry 92A of List I. Therefore, there is nothing wrong for Parliament to claim taxing power under Entry 97 of List I and all that is required to be shown is that that tax is not mentioned in List II or List III. Resorting to Entry 97 of List I. The Parliament brought out the amendment Section 65(105)(zzzzt) bringing the activity of temporary transfer or permission to use or enjoy the copyright for consideration under the ambit of service tax net on the service provided by resorting to Entry 97 of List I and the same cannot be said to be ultra vires the Constitution. Transfer of right to use the goods or permission to use the copyright or enjoyment of copyright operate in different fields. There may be overlapping. The impugned legislation cannot be held to be vitiated merely because there is overlapping and that both sales tax and service tax becomes leviable. Legislative competence of the Parliament - As decided in MAFFTALAL INDUSTRIES LTD.,v UNION OF INDIA 1996 (12) TMI 50 - SUPREME COURT OF INDIA in the matter of taxation laws the Court permits a great latitude to the discretion of the legislature and the State is allowed to pick and choose objects, persons, methods, and even rates for taxation, thereby having wide discretion. Permission to use and transferring temporarily or enjoy the intangible goods such as designs, patents and trademarks were subject matter of levy to service tax from 2004. Though copyright is also once such intangible item, it was excluded from the scope vide section 65 (55a). Now copyright service has been brought under the category of taxable service, by virtue of section 65 (105)(zzzzt). Therefore, the respondents may be justified in stating that when temporary transfer of other categories of intellectual property such as designs, patents and trademarks are liable to service tax, there is no justifiable reason to exclude copyright services from such category. Writ petitions dismissed.

Summary

Issues Involved:
1. Whether the taxable event under Section 65(105)(zzzzt) of the Finance Act, 1994, is covered by Article 366(29A)(d) as a "deemed sale of goods."
2. Whether the levy of service tax on "temporary transfer or permitting the use or enjoyment of copyright" under Section 65(105)(zzzzt) of the Finance Act, 1994, falls under Entry 54 of List II, thus transgressing the State Legislature's exclusive domain.
3. Whether the temporary transfer of copyright constitutes a sale of goods, thereby involving no service element.
4. Whether the dominant intention of the transaction should be considered, assuming there is an element of service involved.
5. Whether Parliament has the authority to dissect a composite transaction and levy service tax.
6. Whether Section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright is ultra vires the Constitution.

Issue-wise Detailed Analysis:

1. Taxable Event under Section 65(105)(zzzzt) and Article 366(29A)(d):
The court held that the taxable event under Section 65(105)(zzzzt) is not covered by Article 366(29A) as a "deemed sale of goods." Temporary transfer or permitting the use or enjoyment of copyright is considered a service provided by the copyright holder. The court noted that while the transfer of the right to use goods might be considered a sale, a temporary transfer or mere permission to use or enjoy the copyright for specified purposes is a service. The court emphasized the nature of the transaction to determine taxability, referencing the Supreme Court's decision in B.S.N.L. Case [(2006) 3 SCC 1].

2. Levy of Service Tax and Entry 54 of List II:
The court rejected the petitioners' contention that the levy of service tax on temporary transfer or permitting the use or enjoyment of copyright falls under Entry 54 of List II. The court held that service tax is not a levy on the "transfer of right to use the goods" but on the temporary transfer or permitting the use or enjoyment of the copyright. The court referenced several Supreme Court decisions, including Tamil Nadu Kalyana Mandapam Association v. Union of India (2004) 5 SCC 632, which upheld the levy of service tax under Entry 97 of List I.

3. Temporary Transfer of Copyright as Sale of Goods:
The court examined various modes of transactions in the film industry, such as outright assignment, lease, percentage of share, and profit share. The court found that these transactions involve temporary transfer or permission to use or enjoy the copyright, not a sale of goods. The court noted that the producer retains the original copyrights and the transactions do not amount to a sale or permanent transfer. The court held that service tax is leviable on such temporary transfers or permissions.

4. Dominant Intention of the Transaction:
The court rejected the petitioners' argument that the dominant intention of the transaction should be considered. The court held that service tax is a value-added tax imposed on commercial activities involving the production of goods and provision of services. The court emphasized that service tax is levied on the activity of temporary transfer or permitting the use or enjoyment of copyright, which provides value addition.

5. Authority to Dissect a Composite Transaction:
The court held that Parliament has the authority to levy service tax on the service element of a composite transaction. The court referenced the Supreme Court's decision in Association of Leasing and Financial Services Companies v. Union of India (2011) 2 SCC 352, which upheld the levy of service tax on financial leasing services. The court noted that service tax is imposed on the activity of financing or funding, not on the material or sale.

6. Constitutionality of Section 65(105)(zzzzt):
The court upheld the constitutionality of Section 65(105)(zzzzt) of the Finance Act, 1994. The court held that the temporary transfer or permitting the use or enjoyment of copyright is a service provided by the copyright holder and falls within the legislative competence of Parliament under Entry 97 of List I. The court noted that service tax is a value-added tax on commercial activities and the impugned provision is not ultra vires the Constitution.

Conclusion:
The court dismissed the writ petitions, upholding the levy of service tax on the temporary transfer or permitting the use or enjoyment of copyright under Section 65(105)(zzzzt) of the Finance Act, 1994, as constitutionally valid. The court emphasized that service tax is a tax on commercial activities and Parliament is within its legislative competence to levy such tax under Entry 97 of List I.