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TMI Blog2013 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... 13(1)(a) of the said Act. 2. Introduction - Service Tax on Copyrights: When service tax was levied on 'Intellectual Property Services' namely trademarks, designs, patents or any other similar intangible property, with effect from 10.9.2004, copyright was specifically excluded from the definition of Intellectual Property Rights (IPRs). Copyright is nothing but intellectual property right which explicitly remained outside the scope of service tax just to encourage authors, artists, etc. The Finance Act, 2010 has levied service tax on transferring temporarily or permitting the use or enjoyment of any copyright except the rights covered under section 13(1)(a) of the Copyright Act, 1957. 3. Services of copyright are taxable with effect from 1.7.2010. With effect from 1.7.2010, sub-clause (zzzzt) of clause (105) of Section 65 defines the "Taxable Service" as under: "Taxable service" means any service provided or to be provided to any person, by any other person, for - (a) transferring temporarily; or (b) permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (l) of Section 13 of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is beyond the legislative competence of the Union of India. Under the constitutional scheme, for the demarcation of taxing powers between the Centre and the State, levy of sales tax/value added tax on goods, which includes the transfer of right to use any goods is the exclusvie taxing domain of the States and various States are currently trading intangibles like "Copyrights" as goods. Copyright is a form of intellectual property i.e., intangible property and State Legislature is levying value added tax on these transactions treating it as trading of goods or transfer of right to use. While on the one hand, assignment of these rights is treated as sale of goods by the State Legislature(s) and on the other hand it is treated as providing services, which is ultra vires the Constitution of India. From 2002, Parliament has amended Central Sales Tax Act to widen definition of "sale" to cover transfer of right to use the goods in exercise of powers under Entry 92A of the Union List and the Parliament cannot now treat the same transaction as "service" for levy of service tax. By enacting the new taxing entry to levy service tax, on the very same transaction of the transfer/exploitation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received for value addition of assignment of temporary right or permission to use the copyright. Referring to various judgments of the Supreme Court, it is averred that Supreme Court upheld the legislative competence of the Parliament to levy service tax under residuary Entry 97 of List I of VII Schedule and necessary constitutional amendments were made giving authority to the Parliament to legislate all service taxes. The counter statement also refers to the nature of transactions to contend that they are only a temporary transfer of right or a mere transfer of right to use or enjoy the copyright for specified purposes, which according to the respondents, is a service provided by the person, who is the holder of the copyright. 12. Heard Mr.M.Venkatachalapathy, learned Senior Counsel; Mr.K.Vaitheeswaran; Mr.N.Prasad; Mr.Ravi and Mr.T.T.Ravichandran, learned counsels appearing for the wirt petitioners. 13. Onbehalf of Writ Petitioners the following contentions were raised:- Temporary transfer of Copyright is a "transfer of right to use goods" which is a sale in terms of Article 366(29A) read with Entry 54 of List II of the Constitution and therefore, it is not a service; that Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies case (2011) 2 SCC 352; All India Federation of Tax Practitioners case (2007) 7 SCC 527 and Gujarat Ambuja Cements Limited case (2006) 3 SCC 1, the learned counsel submitted that the Hon'ble Supreme Court upheld the levy of service tax under Entry 97 of List I. It was submitted that the impugned levy of service tax on temporary transfer of copyright or permission to use or enjoyment is within the legislative competence of Parliament with reference to Entry 97 of List I of Seventh Schedule of the Constitution of India and the same is constitutionally valid. 16. We have also heard the submissions of Mr.Kanmani Annamalai, learned Government Advocate (T) appearing for State of Tamil Nadu and Mr.R.Ananda Kumar, learned counsel appearing for 4th Respondent in W.P.No.482 of 2011 and 5th Respondent in W.P.No.483 of 2011 and 231 of 2012. 17. Upon consideration of the rival contentions and averments in the Writ Petitions and counter statement, the following points arise for consideration in these Writ Petitions:- 1. Whether the taxable event provided under Section 65(105)(zzzzt) of the Finance Act, 1994 is covered by Article 366 (29A)(d), which is a "deemed sale of goods"? 2. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined to mean tax chargeable under Chapter V. Taxable Service was defined to mean any service provided by stock brokers to an investor in connection with sale or purchase of securities listed by a recognised stock exchange; services rendered by the subscriber of the telegraph authority and services rendered by insurer to a policy holder. Section 66 stated that Service Tax shall be levied at the rate of 5% of the value of the taxable services provided to any person by service provider who was responsible for collecting the service tax. 21. Finance Act, 1998, was also to the same effect as that of the 1994 Act and in the 1998 Act, the list of notified services were increased to include advertising agencies, travel agencies, architects, entrepreneurs, clearing and forwarding agencies, credit rating agencies, customs house agents, practising charted accountants, cost accountants, real estate agents, security agencies etc. The Finance Act has been amended year after year in order to bring more services into the tax net, as well as to insert certain new provision found necessary. 22. The legislative competence of the Parliament to levy service tax on Kalyana Mandapam on use of goods t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sound recording accompanying such visual recording and "cinematograph" shall be construed as including any work produced by any process analogous to cinematography including video films. Section 2(ff) deals with communication to the public, which reads as under: 2(ff) communication to the public" means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or diffusion other than by issuing copies of such work regardless of whether any member of the public actually sees, hears or otherwise enjoys the work so made available. Explanation. - For the purposes of this clause, communication through satellite or cable or any other means of simultaneous communication to more than one household or place of residence including residential rooms of any hotel or hostel shall be deemed to be communication to the public. 26. As per Section 2(uu), producer means producer in relation to a cinematograph film or sound recording, means a person who takes the initiative and responsibility for making the work. 27. As per Section 13, Copyright subsists in the following works: (1) Subject to the provisions of this section and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners drawing our attention to the decision of this Court in A.V.Meyyppan Vs. Commissioner of Commercial Taxes, Board of Revenue, Madras and another, (20 STC 115) submitted that the temporary transfer of copyright is considered as a transfer of right to use goods, which is a deemed sale in terms of Article 366(29A). Learned counsel further submitted that the copyrights in the Cinematograph films have been considered as goods as the items are subject to sales tax (VAT) by the State Legislature in terms of Entry 54 of List II and while so, Parliament cannot resort to Entry 97 of List I to levy service tax on the temporary transfer or permitting the use or enjoyment of the copyright. 31. Brief history of taxation of films under Sales Tax Laws:- In relation to taxation of films under Service Tax Act, there can be normal sale of film or sale by way of lease. In A.V.Meyyppan Vs. Commissioner of Commercial Taxes, Board of Revenue, Madras and another, (20 STC 115), the assessee, a producer of Cinematograph films, obtained the copyright of a story in "Hindi" and on the basis of that story produced a cinematography film. The assessee then entered into an agreement with a Limited C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 33. Contention of petitioners is that the transactions between the producer and the distributor and the distributor and the exhibitor involve delivery of tangible property as goods and in any event those transactions are covered within the extended meaning of sub-clause (d) of clause (29A) of Article 366 on the transfer of the right to use the goods". When t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. The Hon'ble Supreme Court has held that the situs of lease sale lies in the State where the agreement is executed if the goods are available for delivery. The Hon'ble Supreme Court further held that if the goods are not available for delivery or there is no written agreement, then the sale will be deemed to have taken place in the State where the delivery is given. While so holding, the Hon'ble Supreme Court elaborated upon the scope of Article 366 Clause 29A and observing that the taxable event under Article 366(29A) is the transfer of right to use the goods and elaborately considering the scope of Article 366(29A), the Hon'ble Supreme Court held as under: "26. Next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29-A)(d) empowers the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (29-A) of Article 366 permit the imposition of tax thus: sub-clause (a) on transfer of property in goods; sub-clause (b) on transfer of property in goods; sub-clause (c) on delivery of goods; sub-clause (d) on transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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). 38. Point No.2:- Re.contention : Temporary transfer or use or enjoyment of the copyright is a sale of goods falling under Entry 54 of List II:- On behalf of the petitioners, learned counsel submitted that the agreements entered into between the producer and the distributor and the distributor and exhibitors (theatres) is patterned on different lines based on commercial exigency and the arrangement involves delivery of goods. Drawing our attention to various patterns of agreements in film industry, the learned counsel contended that such agreements involve delivery of goods for which sales tax is levied. On behalf of the petitioners, it was contended that in the course of inter-State sale, under Entry 92A of List I, Union of India levies sales tax and the sale in the course of intra-State is the subject matter of the States falling under Entry 54 of List II and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opyrights are classified as intangible property and are accordingly treated as goods for levying VAT on the transfer of copyrights. The learned counsel further submitted that many States like Andhra Pradesh, Delhi, Maharashtra, Karnataka and West Bengal have exercised their powers to levy tax on sale of goods in terms of Entry 54 of List II to the Seventh Schedule of the Constitution and the Parliament cannot levy service tax on the goods, which are already subjected to VAT. 42. The learned Senior counsel Mr.M.Venkatachalapathi also submitted that the transfer of copyright is only sale of intangible goods and that it is only a temporary transfer of copyright and no service is provided and therefore levy of the service tax and the amendment - 65(105)(zzzzt) having resort to Entry 97 of List I are ultra vires the Constitution. 43. In short, the submission of all the writ petitioners is that temporary transfer of copyright or use or permit of a copyright in a cinematograph film is only a transfer of right to use the goods, which is a sale/deemed sale for which legislating under Entry 54 of List II, States have enacted legislation in terms of VAT/Sales Tax Acts. It is their submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by Dr. Raja Chelliah Committee in the early nineties that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to Sl. No. 97 of List I of the Seventh Schedule and this Court in Laghu Udyog Bharati v. Union of India (1999) 6 SCC 418 found no lack of legislative competence as far as the levy of service tax was concerned. 53. It is also emphasised that a tax cannot be struck down on the ground of lack of legislative competence by enquiring whether the definition accords with what the layman's view of service is. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and choose objects and rates for taxation and has a wide discretion with regard thereto. We may in this context refer to the decision of Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536(SCC para 343, at pp. 740-41): In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r goes to a mandap-keeper, say a star hotel, not merely for the food that it will provide but for the entire variety of services provided therein which result in providing the function to be solemnised with the required effect and ambience. Similarly the services rendered by outdoor caterers is clearly distinguishable from the service rendered in a restaurant or a hotel inasmuch as, in the case of outdoor catering service the food/eatables/drinks are the choice of the person who partakes of the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of a restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to be paid to the caterer. Outdoor catering has an element of personalised service provided to the customer. Clearly, the service element is more weighty, visible and predominant in the case of outdoor catering. It cannot be considered as a case of sale of food and dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under the above residuary powers. 46. In GUJARAT AMBUJA CEMENT LTD v. UNION OF INDIA [(2005) 4 SCC 214], the Writ Petitioners were customers or clients of Goods Transport Operators and Forwarding and Clearing Agents. One among the contention was that the levy of service tax on goods transport operators and forwarding and clearing agents, encroaches upon the State Government's power as defined in Entry 56 of List II of the seventh schedule to the Constitution and the Parliament could not by resorting to residuary Entry 97 of List I of the Seventh Schedule circumvent Entry 56 of List II and in the guise of levying service tax in fact levy a tax on the transport of goods. Noting that there is distinction between the object of tax, the incidence of tax and machinery for the collection of tax and legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery, the Hon'ble Supreme Court held as under:- 27. There is a distinction between the object of tax, the incidence of tax and the machinery for the collection of the tax. The distinction is important but is apt to be confused. Legislative competence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be expedient and convenient to provide for the recovery of the said tax from the owners of the vehicles themselves. (See also Sainik Motors v. State of Rajasthan, ((1962) 1 SCR 517 = AIR 1961 SC 1480.) 28. Having determined the parameters of the two legislative entries the principles for determining the constitutionality of a statute come into play. These principles may briefly be summarised thus:- (a) The substance of the impugned Act must be looked at to determine whether it is in pith and substance within a particular entry whatever its ancillary effect may be [Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,AIR 1947 PC 60, 65, A.S. Krishna v. State of Madras, 1957 SCR 399 = 1957 CriLJ 409, State of Rajasthan v. G. Chawla, 1959 Supp. (1) SCR 904 = 1959 CriLJ 660, Katra Educational Society v. State of U.P, (1966) 3 SCR 328 = AIR 1966 SC 1307, D.C. Johar & Sons (P) Ltd. v. STO, 1971 (27) STC 120 (SC) and Kannan Devan Hills Produce v. State of Kerala, (1972) 2 SCC 218). (b) Where the encroachment is ostensibly ancillary but in truth beyond the competence of the enacting authority, the statute will be a colourable piece of legislation and constitutionally invalid (A.S. Krish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges but does not include any insurance charges; 30. As far as clause (j) is concerned it does not speak of goods or passengers, nor of carriage of goods nor is it limited to service by road or inland waterways. Clause (m-a) shows that the valuation of the service tax includes the freight charges, but is not limited to it. 31. It is clear therefore that Section 66 read with Sections 65(41)(j) and 67(m-a) in Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or passengers. The subject-matter of tax under those provisions of the Finance Act, 1994 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levies are to be measured on the same basis, but that does not make the levy the same. As was held in Federation of Hotel and Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634 : (SCC pp. 652-53, paras 30-31) subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. Indeed, the law with respect to a subject might incidentally aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or hire-purchase of goods and from a tax on land. 47. In ALL INDIA FEDERATION OF TAX PRACTITIONERS v. UNION OF INDIA, (2007) 7 SCC 527, the appeal was against the Division Bench Judgment of the Bombay High Court upholding the legislative competence of Parliament to impose Service Tax under Article 246 (1) read with Entry 97 of List I of the Seventh Schedule to the Constitution on practising Charted Accountants and Architects. On behalf of the Appellant Association therein it was contended that tax on profession was a State subject, and therefore, Entry 97 of List-I, cannot be invoked and that Parliament had no legislative competence to levy Service Tax. After analysing the object of enacting the Finance Act and interpreting the Taxing entries in the Seventh Schedule to the Constitution, it was held as follows: 33. Applying the above tests laid down in the aforestated judgments to the facts of the present case, we find that Entry 60 of List II, mentions 'Taxes on professions, trades, callings and employments'. Entry 60 is a taxing entry. It is not a general entry. Therefore, we hold that tax on professions etc. has to be read as a levy on professions, trades, callings et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F LEASING AND FINANCIAL SERVICES COMPANIES VS UNION OF INDIA AND OTHERS (2011) 2 SCC 352, the controversy pertained to the validity of section 65 (12) and 65 (105) (zm) of the Finance Act 1994 as amended in so far as it seeks to levy service tax on leasing and hire purchase transactions. It was contended that it was beyond the legislative competence of the Parliament by virtue of Article 366 (29A) of the Constitution. In fact, identical contentions as raised in these Writ Petitions were raised before the Hon'ble Supreme Court, contending that hire purchase/leasing is deemed to be a sale and any attempt to levy service tax on the same transaction will amount to colourable exercise of power and when sales tax is paid for transfer of right to use the goods, particularly, when such transfer is a deemed sale under Article 366 (29A), it is not open to the Parliament to impose service tax on the sale transaction once again. Further it was contended that there is no rendition of service in a hire purchase/ leasing transaction. The Hon'ble the Supreme Court while analysing the scope of Article 366 (29A), held as follows: "Scope of Article 366(29-A) 49. If one examines Article 366( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament divested itself of the power to levy service tax vide enactment of the Constitution (Forty-sixth Amendment) Act. Even in the Report of the Law Commission, it has been observed that "if a hire-purchase transaction results in a sale, sales-tax is undoubtedly leviable by the States. No doubt, it is difficult to determine the "sale price" for the purpose of the sales tax law but this has no bearing on the question of legislative competence" (p.26). 51. Thus, reliance placed by the appellant(s) on the expression "splitting up" in K.L. Johar's case is misconceived because the "splitting up" referred to in K.L. Johar's case was, as stated above, in regard to valuation and not in regard to legislative competence." 49. On the question whether State legislature has exclusive competence to levy tax on financial leasing services, under Entry 54 List II, it was held as follows: 52. On behalf of the appellant(s) it was submitted that the State Legislature has the exclusive competence to levy a tax on hire-purchase and financial leasing by reason of Entry 54, List II read with Article 366(29A). It was submitted that, as held by this Court in the case of Bharat Sanchar Nigam Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said article." 50. As regards the power of the Parliament under Entry 97 List I, it was held as follows: 58. Now coming to the main point whether the whole field is covered by Entry 54 and that the levy of service tax is incompetent, it is important to note the language of Entry 97, List I and Article 248 except for the word "other" in Entry 97. This is because when one reads Entry 97 of List I with Article 246(1) it confers exclusive power first, to make laws in respect of matters specified in Entries 1 to 96 in List I and, secondly, it confers the residuary power of making laws by Entry 97. Article 248 does not provide for any express powers of Parliament but only for its residuary power. Article 248 adds nothing to the power conferred by Article 246(1) read with Entry 97, List I. In the context of an exhaustive enumeration of subjects of legislation what does the conferment of residuary power mean? Entry 97, List I which confers residuary powers on Parliament provides "97. Any other matter not enumerated in List II and List III including any tax not mentioned in either of those lists". The word "other" is important. It means "any subject of legislation other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of financial leasing including equipment leasing and hire-purchase, will be leviable only on the lease management fees/processing fees/documentation charges recovered at the time of entering into the agreement and on the finance/interest charges recovered in equated monthly installments and not on the principal amount). Merely because for valuation purposes inter alia "finance/interest charges" are taken into account and merely because service tax is imposed on financial services with reference to "hiring/interest" charges, the impugned tax does not cease to be service tax and nor does it become tax on hire-purchase/leasing transactions under Article 366(29A) read with Entry 54, List II. Thus, while State Legislature is competent to impose tax on "sale" by legislation relatable to Entry 54 of List II of Seventh Schedule, tax on the aspect of the "services", vendor not being relatable to any entry in the State List, would be within the legislative competence of the Parliament under Article 248 read with Entry 97 of List I of Seventh Schedule to the Constitution. ... 66. .... The service tax in the present case is neither on the material nor on sale. It is on the activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal sale or deemed sale or temporary transfer of copyright, permitting to use or enjoyment of the copyright. 54. According to Petitioners, the transactions between producer and the distributor, distributor and sub-distributor or exhibitor involves delivery of goods i.e. positive prints or cubes of the picture, which amounts to sale within the meaning of Section 2(7) of the Sale of Goods Act, 1930. Article 366(12) of the Constitution has defined the word goods for the purpose of the Constitution as including all materials, commodities, and articles. The word goods has also been defined in Section 2(7) of the Sales of Goods Act, 1930 as meaning every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. The State sales tax legislations have, subject to minor variations, adopted substantially a similar definition of goods for the purpose of their Sales Tax Acts. 55. States have exercised their power to levy a tax on the sale of goods and Tamil Nadu Value Added Tax Act, 2006 charges transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court on the interpretation of the word goods in the context of different State sales tax enactments. In number of decisions, the Hon'ble Supreme Court held that the word goods for the purpose of sale tax may be tangible or intangible property. In Tata Consultancy Services Vs. State of Andhra Pradesh, (2001) 4 SCC 629, the Hon'ble Supreme Court held as Under:- A 'goods', may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customised or non-customised satisfies these attributes, the same would be goods. 58. To contend that goods may be tangible property or intangible one, reliance was also placed upon (2004) 137 STC 117 (S.P.S.Jayam and Co. v. Registrar, Tamil Nadu Taxation Special Tribunal and others) where the transfer of trademark, an intangible property was held to be goods as per Tamil Nadu General Sales Tax Act, 1959. Division Bench of this Court held that the Trademark is the property right and it exclusively belongs to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collection after deducting commission. So, the entire risk of box office performance of the film remains with the producer. This is the most common channel available to low budget producers. 3. Outright Sale Here, the producer sells all distribution and theatrical rights for a defined territory exclusively to a distributor. Effectively, the distributor becomes a producer in the yes of the market. So, the entire risk of box office performance of the film remains with the distributor. 63. In the Writ petitions, the petitioners have enumerated certain modes of business transactions between the Producer and the Distributor as between the Distributor and exhibitor. We feel it appropriate to briefly refer to those transactions. a. Outright Assignment: Outright assignment is made of either of the totality of the rights or specific rights such as satellite rights, broadcasting rights, cable television rights, territorial rights and internet rights. The assignment may be perpetual. The agreement is accompanied by delivery of the goods being the master or CD tapes of the assigned film. b. Lease: The producer leases the distribution/exhibition rights for a specific territory for considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or cubes of the picture for the exhibition of the picture in the specified area. In otherwords, it is a temporary transfer of the copyright or permission to use or enjoyment for the limited period in the specified area. As rightly contended by the respondents, exclusive right of copyright ordinarily vests with the producer of the film. Even in outright assignment, the transfer is not absolute. In the case of a lease, it is for a given period. The levy of tax on any transaction is based on the criterion whether the transfer of right is permanent or temporary. So long as the producer does not fully relinquish his right over the copyright held by him, transfer of the right to use is purely temporary and in those cases, levy of service tax for such transfer of copyright would apply. The Service Provider is the Producer,who is the owner of the Intellectual Property and the service receiver is the person who temporarily gets the right to use the Intellectual Property who is the Distributor and service tax is leviable on such temporary transfer of copyright. 66. Normally, producer of a movie exploits the film in many ways i.e., assigning copyrights to distributor(s) for exhibition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eening centres will be on terms basis or on minimum Guarantee basis. Distributor shall carry out the local and theatre publicities for promotion of the picture and the Distributor has to take prior written sanction and the budget approval from the Distributor. The Distributor shall surrender the rights with prints and publicities at the end of the Agreement period or in the event of sale to third party. 69. The above mutual activities would show that notwithstanding the distribution agreement, the producer retains the right to deal with and dispose of the rights of the agreement to any third parties. The Producer also retains the right to screen the picture over the satellite channels, Doordarshan channels, etc., at any time after certain period (six months from its first and general release of the picture). Various clauses in the distribution agreement would clearly show that the distribution agreement is only a temporary transfer of copyright or permission to use or enjoyment of the film by exhibiting the film in a specified area for a specific period of time. While the producer retains his right to exploit the film , there is no transfer of right to use the goods amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. This is the most common channel for low-budget films, causing rank newcomers, with unproven track record. 2. Fixed Hire Here, the exhibitor pays the distributor a maximum lump sum irrespective of the box office performance of the film. Rental is not chargeable per show. Any surplus after deducting entertainment tax is retained by the exhibitor. Effectively, the exhibitor becomes a producer in the eyes of the market. So, the entire risk of box office performance of the film remains with the exhibitor. This is the most common channel for high budget films, casting established front-runners, with proven track record. 3. Minimum Guarantee + Royalty Here, the exhibitor pays the distributor a minimum lump sum irrespective of the box office performance of the film. Any surplus after deducting entertainment tax and show rental is shared in a pre-set ratio (typically 2:1) between the exhibitor and distributor. But risk of deficit remains with the exhibitor. This is the most common channel preferred by single screens. 4. Revenue Share Here, the exhibitor shares with the distributor, in a pre-set ratio (typically 1:2), the entire box office collection of the film after deducting enterta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 74. To satisfy the parameters/attributes as laid down in B.S.N.L. Vs. Union of India, (2006) 3 SCC 1, the goods must be available for delivery, there should be consensus as regards identity of goods, transferee should have a legal right to use the goods, and such legal right has to be to the exclusion of the transferor and having transferred the right to use, during the period the owner cannot again transfer the same rights to others. The characteristics noted above are available in the case of assignment/lease/transfer of copyright and so subjected to VAT. 75. In our opinion, none of these attributes are present in the agreement between the producer and the distributor and the distributor and the theatre owner. Even while t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for submission of the documents, the Producers approached the Court by filing writ petitions. Therefore, the nature of transaction in respect of assignment agreement dated 5.7.2010 could not have been examined by the Department. In any event, any one such transaction cannot be a ground to hold that the impugned provision is unconstitutional. 78. In INFO TECH SOFTWARE DEALERS ASSOCATION Vs. UNION OF INDIA 2010 (20) STR 289, (Madras), the challenge was to the legislative competence of the Parliament to impose service tax on software supplied to a customer pursuant to a end user licence agreement under section 65 (105)(zzzze). In the said case, identical contention, as raised in these Petitions, were raised stating that Software is goods and all transactions would amount to sale. The said writ petition was dismissed holding that software is goods and whether the transaction would amount to sale or service would depend upon individual transaction and for the reason of that challenge, the amended provision cannot be held to be unconstitutional so long as the Parliament has legislative competency to enact law in respect of service under Entry 97 of List-I. 79. Exclusion of permanent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which are sold and sale is the taxable event, sofar as Sales Tax/ Value Added Tax, whereas Service Tax is a value added tax. 82. The Hon'ble Supreme Court in BSNL vs. UOI, explained the "aspect doctrine" by observing that the doctrine merely deals with legislation competence. As held in Federation of Hotel & Restaurant vs. UOI, subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within the another legislative power. It was further held that there may be overlapping, but the overlapping must be in law and the transaction may involve two or more taxable events in different aspects, but the fact that there is overlapping does not detract from the distinctiveness of the aspects. 83. Considering the nature of various arrangements between the producer and the distributor, distributor/sub-distributor and theatre owner, we are of the view that there is only temporary transfer or permission to use or enjoyment for consideration on certain terms and conditions in a specified area. Irrespective of the arrangement of rights to the distributor to a specific area for a limited period, the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s value addition. It gives value addition to the goods manufactured or produced or sold on account of activities the film exhibited. Thus, service tax is imposed every time service is rendered. The taxable event in each exercise/activity undertaken by the service provider and each time, service tax gets attracted. 87. Elaborating upon the value addition and observing that value addition comes in an account of activity undertaken by the professional, in (2011) 2 SCC 352 [Association of Leasing and Financial Services Companies v. Union of India and others], the Hon'ble Supreme Court held as under:- Nature and character of service tax 38. In All India Federation of Tax Practitioners' case (2007) 7 SCC 527, this Court explained the concept of service tax and held that service tax is a value added tax (VAT, for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production negative of the films are made till it gets exhibited in theatre or exploited through other media. Lot of economic/commercial activities are involved. Those commercial activities amounting to temporary transfer of copyright or permitting use or enjoyment of copyright, Parliament is well within its competence to levy service tax. 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. 89. Point No.3 : Re.contention No element of service is involved:- Contention of Petitioners is that tax is leviable only on services provided i.e. on the value addition and there is no service or element of service in the act of temporary transfer or permitting use or enjoyment of a copyright to another for his business. Further contention of Petitioners is that in Tamil Nadu Kalyana Mandapam Association case (2004) 5 SCC 632, the Hon'ble Supreme Court pointed out various services rendered by Mandap keepers. It was contended in Association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otel & Restaurant Assn. of India v. Union of India , SCC at p. 651). If the statute is legislatively competent the enquiry into the motive which persuaded Parliament or the State Legislature into passing the Act is irrelevant (Dharam Dutt v. Union of India 2004 (1) SCALE 425). (c) Apart from passing the test of legislative competency, the Act must be otherwise legally valid and would also have to pass the test of constitutionality in the sense that it cannot be in violation of the provisions of the Constitution nor can it operate extraterritorially. (See Poppatlal Shah v. State of Madras 1953 SCR 677S.)" 92. The legislative competence of the Parliament does not depend upon whether any services are made available within the definition of taxable services contained in Finance Act, and in a given case, taxable services are rendered or not is a matter of interpretation of the statute and for adjudication under the provisions of the Statute and the same cannot affect the vires of the legislation and/ or the legislative competence of the Parliament. Therefore, the Supreme Court held that the levy of service tax on a particular kind of service could not be struck down on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy tax on luxuries and Entry 54 in List II empowered the State to levy tax on the sale of goods. The contention was that since the expenditure tax and tax on the sale of goods were covered by the Entries in the State List, there was nothing left for Parliament to tax. In the context of the said controversy, the Hon'ble Supreme Court held as under:- 14. ...... Indeed, the law 'with respect to' a subject might incidentally 'affect' another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Governor General in Council v. Province of Madras, 1945 FCR 179 at p.193 : (AIR 1945 PC 98 at p. 101) in the context of concepts of Duties of Excise and Tax on Sale of Goods said: ..... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire purchase does not involve a sale and service and therefore, service tax cannot be levied on the interest / finance charges, which was sought to be done. 97. Rejecting the contention it was held that financial leasing services are sought to be taxed under section 65(12)(a)(i), the taxable event is indicated in section 65 (105)(zm) and the provision operates qua an activity of funding/financing of equipment/ asset under equipment leasing under which a lessee is free to select, order, take delivery and maintain the asset. It was held that the taxable event is a service which is rendered by the finance company to its customer and thus section 67 of the Finance Act, 1994, seeks to tax financial services rendered with reference to the income earned by way of interest / finance charges. In such circumstances, the question of splitting up of transactions does not arise as the service tax in such case is neither on the material nor on sale, but it is on the activity of financing/funding of equipment/asset within the meaning of the words, financial leasing services in section 65 (12)(a)(i). 98. It is to be stated permission to use and transferring temporarily or enjoy the intangible go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could properly be regarded as two different matters for taxation. In other words, there could be two enactments each in one aspect conferring the power to impose a tax upon goods. Therefore, the impugned legislation cannot be held to be vitiated, merely because there is an element of overlapping in that both Sales Tax and Service Tax becomes leviable on the same assessee in respect of the same goods. We have discussed about the various aspects of the transaction between the parties, which were culled out from copies of the agreements, which were filed along with the writ petitions. From the terms and conditions of the agreements, it is evidently clear that there are two aspects, namely the transfer of the right to use the goods or the permission to use the goods or enjoyment, which operate in different field and merely because there is overlapping on certain aspects, it would not loose the distinctiveness of each of the aspects. As observed earlier, the measure of tax or the economic results cannot be the basis for deciding the vires of the impugned enactment. 102. Re.contention Computation is not possible:- Learned counsel for Petitioners submitted that even assuming that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service tax lies in economics. It is an economic concept. It was evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. 107. Learned counsel for Respondents submitted that huge money is involved in film industry and host of commercial activities are involved right from the box to theatrical exhibition and service tax is a value added tax on those commercial activities. Drawing our attention to National Industrial Classification (All Economic Activities), the learned counsel submitted that motion picture, video and television programme activities are classified under head Service (transport, commerce, administration, etc.) and is one of the important field for contribution of all economic activities towards National Wealth and for planned development. 108. Learned counsel for Respondents has also drawn our attention to the materials and statistics showing that huge money is involved in the distribution of the films and submitted that levy of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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