SERVICE TAX EXEMPTION TO COPY RIGHTS

[Dr. Sanjiv Agarwal]

Exemption to Copyrights Services

Following service were exempt from levy of service tax (up to 31-3-2013):

Temporary transfer or permitting the use or enjoyment of a copyright covered under clause (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 relating to original literary, dramatic, musical, artistic works or cinematograph films;

W.e.f. 1.4.2013, vide Notification No. 3/2013-ST dated 1.3.2013, following services are exempt from levy of Service Tax in relation to copyright:

Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright -

(a)  covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957, relating to original literary, dramatic, musical or artistic works, or

(b)  of cinematograph films for exhibition in a cinema hall or cinema theatre.

Temporary transfer of a copyright relating to original literary, dramatic, musical, artistic work or cinematographic film falling under clause (a) and (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 is exempt. A music company would be required to pay service tax as the copyright relating to sound recording falls under clause (c) of sub-section (1) of section 13 of the Indian Copyright Act, 1957.

When a composer allows the recording of the song on payment of some royalty by a music company for further distribution, Service Tax is not payable on the royalty amount so received from the music company as the copyright relating to original work of composing song falls under clause (a) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 which is exempt from service tax. Similarly, an author having copyright of a book written by him would not be required to pay service tax on royalty amount received from the publisher for publishing the book. A person having the copyright of a cinematographic film would also not be required to pay service tax on the amount received from the film exhibitors for exhibiting the cinematographic film in cinema theatres.

In Mediaone Global Entertainment Ltd. v. Union of India 2013 (7) TMI 22 - MADRAS HIGH COURT it was held that the source of concept of Service Tax lies in economics. Service Tax on movies and exhibition on revenue sharing basis would depend upon the various types of arrangements and hybrid versions of arrangements i.e., exhibiting movie by hiring cinema theatre, business support service or temporary transfer of copy right or permission or use or enjoyment of copyright. Assessing authority cannot mechanically proceed to levy of Service Tax without any basis. The nature of transaction being the determinative factor, decision would have to be taken on case to case basis. The variant modes of transaction between the distributor/sub-distributors of films and exhibitors of movie and the revenue sharing arrangement between them are neither in the “Negative List Services” nor exempted.

Amendment w.e.f. 1.4.2013

Vide Notification No. 3/2013-ST dated 1.3.2013, Entry No. 15 was substituted as under:

‘Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright,-

(a)   covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works; or

(b)   of cinematograph films for exhibition in a cinema hall or cinema theatre’.

Thus, exemption is relation to cinematograph films will be available only for exhibition in cinema halls or cinema theatres.

In case of exhibition of cinematograph films in cinema halls or cinema theatres, normally, producer of a movie exploits the film in many ways i:e; assigning copyrights to distributor(s) for exhibition in theaters; or the producer himself exhibits the film by engaging theatres; exploitation of satellite rights, T. V. channels, audio / video, etc. The right given to the distributor is restricted to exploiting the contents of the film through a film/ digital format through exhibition in theatres in a specific area and for specified time.

Even though the copyright of the film is assigned to a distributor for a specific area for a limited period, the producer reserves his right to exploit the film in other media. So long as the transaction does not amount to sale or permanent transfer, it is only a temporary transfer of copyright or permit its use by another person for a consideration. The service provider is the producer who owns the copyright of the film and Service receiver is the distributor who temporarily owns the copyright of the film for consideration.

The benefit of exemption under S.No. 15 of the Notification in relation to copyrights for cinematograph films will now be available only to films exhibited in a cinema hall or theatre. This will allow service providers to pass on input tax credits to taxable end-users.