2024 (3) TMI 17 - HC - Service Tax

Levy of service tax - assignment of certain rights in the cinematograph films as representing temporary transfer or permitting use or enjoyment of intellectual property i.e., copyright - HELD THAT - The question as to whether a particular transaction would attract the levy of Service Tax as constituting a taxable service within the meaning of 65(105)(zzzzt) prior to 01.07.2012 or Section 66B read with Section 65B(44) and Section 66E(c) w.e.f. 01.07.2012 ought to be determined on the basis of the contracts entered into between the service provider and the recipient. One cannot generalize the transactions nor determine the liability without examining the contracts individually for the rights/ obligations flowing therefrom may vary from contract to contract. This would be evident by the very fact that some of the contracts have been treated by the respondents in the writ appeals as representing temporary transfers thereby attracting the levy of Service Tax, while other contracts are understood by the respondents as resulting in perpetual transfers i.e., permanent and not temporary, thus outside the purview of levy of Service Tax. The matters may be remitted back to the assessing authority for fresh adjudication - Petition disposed off.

Summary

Issues Involved:
1. Validity of the show cause notices and orders-in-original levying tax on assignment of rights in cinematograph films.
2. Jurisdiction of the adjudicating authority in levying service tax on perpetual transfers of copyright.
3. Observations made by the learned Judge on the merits of the case, causing prejudice to the Revenue.

Summary of Judgment:

1. Validity of Show Cause Notices and Orders-in-Original:
The petitioners challenged the show cause notices and orders-in-original issued by the adjudicating authority, which proposed to levy tax on the assignment of certain rights in cinematograph films, treating them as temporary transfers or permissions to use or enjoy intellectual property (copyright). The respondents argued that the impugned notices and orders also levied tax on perpetual transfers, which are permanent in nature and outside the purview of service tax.

2. Jurisdiction of Adjudicating Authority:
The respondents contended that the levy of service tax on copyright is limited to temporary transfers or permissions to use or enjoy copyright as defined in the Copyright Act, 1957. Perpetual transfers, being permanent, do not fall under this category, making the show cause notices and adjudication orders without jurisdiction. The Revenue, however, argued that the agreements of perpetual transfers are a sham, designed to escape the levy under the Service Tax Act, and that the transfer of copyright is temporary, thereby attracting the charge under the Finance Act, 1994.

3. Observations on Merits by the Learned Judge:
The learned Judge found that the respondents are engaged in the production of cinematograph films and entered into various agreements assigning some or all of the copyright for broadcast and exhibition. These assignments varied between perpetual and temporary in nature. The Judge remanded the matters to the adjudicating authority for fresh consideration but made certain observations on the merits, which the Revenue claimed caused prejudice and imposed fetters on the adjudicating authority's powers.

4. Relevant Legal Provisions and Precedents:
The judgment referenced the Division Bench decision in AGS Entertainment Private Limited v. Union of India, which upheld the levy of service tax on temporary transfers or permissions to use or enjoy copyright. The judgment also detailed the relevant provisions of the Finance Act, 1994, and the changes introduced by the Finance Act of 2012, which shifted the scheme from enumerated services to a negative list approach.

5. Remand for Fresh Adjudication:
The Court agreed to remit the matters back to the assessing authority for fresh adjudication, as initially done by the learned Judge, but without the prejudicial observations. The respondents were permitted to file objections to the show cause notices and orders of adjudication within four weeks. The adjudicating authority was directed to proceed with the adjudication independently and objectively, uninfluenced by the learned Judge's observations.

6. Conclusion:
All writ appeals and writ petitions were disposed of, with no costs. Connected miscellaneous petitions were also closed.