2014 (10) TMI 286 - AT - Service Tax

Copyright - Intellectual Property Rights Service - Held that - From the agreement entered into by the appellant with Universal Studio, it is seen that the appellant has been permitted to use property in the name and likeness of the legendary martial artist Bruce Lee embodied in visual images supplied to them for which the appellant has paid consideration to the foreign service provider by way of royalty. The property embodied in visual images would come squarely within the definition of copyrights as defined in Copyright Act, 1957 as artistic work as defined in Section 14 (c) of the Copyright Act. Even if it is treated as a computer programme, it would still fall under copyright as defined in Section 14 (b). Since copyright is specifically excluded from the IPR service during the relevant time, the question of levy of service tax on a copyright work under IPR service does not stand the scrutiny of law. Therefore, the impugned orders are clearly unsustainable. Accordingly, we set aside the same and allow the appeal with consequential relief, if any, in accordance with law - Decided in favour of assessee.

Issues:
- Classification of services under "Intellectual Property Rights Service" for service tax
- Applicability of service tax on royalty payment for the right to use visual images
- Time-barred demands and absence of specific category of IPR under which the property falls

Classification of services under "Intellectual Property Rights Service" for service tax:
The appeal and stay petition challenged an order confirming a service tax demand against a company for services classified under "Intellectual Property Rights Service." The company argued that the visual images used in mobile games, obtained through a license agreement with a foreign service provider, fall under copyrights excluded from IPR services. The company contended that it had been paying service tax under a different category for mobile content services, which was not disputed by the tax department. The tribunal observed that the visual images of "Bruce Lee" used by the company constituted copyrights under the Copyright Act, and since copyrights were excluded from IPR services, the levy of service tax on such works under IPR services was not legally valid. Consequently, the tribunal set aside the impugned order and allowed the appeal.

Applicability of service tax on royalty payment for the right to use visual images:
The company argued that the property in the form of visual images used in mobile games was obtained through a license agreement with a foreign service provider, and the payment made for this right constituted royalty. The company contended that since the visual images fell under copyrights as per the Copyright Act, they were excluded from IPR services, and thus, no service tax should be levied on them. The tribunal agreed with this argument, holding that the visual images indeed constituted copyrights and were not subject to service tax under IPR services. Therefore, the tribunal set aside the service tax demand based on this reasoning.

Time-barred demands and absence of specific category of IPR under which the property falls:
The company raised the issue of time-barred demands, stating that the show-cause notice was issued after a significant delay for the period in question. Additionally, the company highlighted the absence of a specific category of IPR under which the property obtained through the license agreement fell. The tribunal acknowledged these points, noting that the notice and the impugned order did not specify the category of IPR to which the property belonged. Despite this, the revenue authority argued that the property fell under IPR services, subject to tax on a reverse charge basis. However, the tribunal concluded that since the property constituted copyrights excluded from IPR services, the demands were unsustainable. As a result, the tribunal set aside the impugned order and disposed of the appeal in favor of the company.

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