Madras High Court rejects AR Rahman's plea against service tax demand on copyright transfer

Madras High Court rejects AR Rahman's plea against service tax demand on copyright transfer

Suggests him to appeal before the Central Goods and Service Tax authority

The Madras High Court has dismissed a batch of petitions filed by music composer AR Rahman and others challenging the notices issued by the Goods and Service Tax (GST) department. The department had demanded service tax for the permanent transfer of copyrights of their musical work made to the film producers.

In the Amrita International vs Principal Commissioner of CGST & Central Excise case, Justice Anita Sumanth dismissed the pleas filed by Rahman, CR Santhosh Narayanan, and GV Prakash Kumar.

However, Justice Sumanth granted liberty to Rahman and another petitioner to file statutory appeals before the Central Goods and Service Tax (CGST) authorities within four weeks challenging the service tax demand with a penalty.

Under the CGST Act, the court directed the appellate authorities to entertain the appeals "without reference to the limitation period."

The petitioners had challenged the proceedings initiated against them by the Principal Commissioner of CGST and the Central Excise department in 2019.

The proceedings were based on a show-cause notice issued to them in 2018 by the Additional Director General of GST Intelligence, Chennai Zonal Unit. The notice proposed a levy of service tax on the transfer of copyright in the musical work between April 2013 and June 2017.

It claimed that Rahman and other petitioners were not the owners of their composed music works. Hence, no copyright as contemplated under the Copyright Act, 1957, was vested in them.

The proceedings were initiated on the charge that they had suppressed several receipts between 2013 and 2017 to avoid remitting the service tax.

However, Rahman argued that the proceedings were illegal, as they were initiated by the CGST authority even though the show-cause notice was issued by the Chennai Zone's GST authority. He maintained being the "sole and absolute owner of the copyright that subsists in the musical works composed by him."

Also, being the holder of the copyright, he assigned them to the film producer under agreements executed with them. Therefore, the producer could exploit that copyright. He claimed that the Commissioner of GST and Central Excise initiated proceedings against him and demanded Rs.13.58 crore on the erroneous presumption that film producers should be considered as owners of the copyright of his musical work created on the basis of contractual agreements between them.

Citing the Copyright Act, Rahman said that a composer was the sole owner of the copyright on songs and background scores composed for the movies produced by others. Thus, the permanent transfer of copyright could not be termed as a service liable for tax.

In the case of Kumar, the bench held that he had approached the court prematurely and should first respond to the show-cause notice. As for Rahman and Narayanan, there was no conflict of jurisdiction of the Central and Zonal GST authorities. The issues were raised on the merits of copyright and ownership of music and the demand for service tax required a study of voluminous records including the agreements which the three music composers signed with various movie producers.

The bench held, "It is best that such issues be decided by the authorities who can call for relevant information, including the agreements from the petitioners for their appreciation. Interpretation of contractual clauses is not a matter that should concern this court."

The court said there was no dispute of jurisdiction in the case as the Indirect Tax departments had for years followed the practice of issuance of show-cause notices by one authority with adjudication by another.

The bench was of the view, "While there can be no dispute with the proposition that what is prescribed has to be done as per the prescription, the duel procedure followed hitherto is explained by the respondents as a measure and in the interests of administrative feasibility. This is a legitimate explanation and the procedure has withstood the test of time."

Advocate Radhika Chandrasekhar appeared for AR Rahman and CR Santosh Narayanan. Advocate Joseph Prabakar appeared for GV Prakash Kumar.

Additional Solicitor General R Sankara Narayanan appeared for the Commissioner of CGST and Central Excise.

Senior Central Government Standing Counsel V Sundareswaran appeared for the Joint Director, Office of the DGGI, Chennai Zonal Unit.