Transfer of Film Copyright Not Liable to Service Tax: CESTAT

Transfer of Film Copyright Not Liable to Service Tax: CESTAT

Introduction and Case Context

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax cannot be levied on the transfer or assignment of copyright of a film produced under copyright service.

The bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) was hearing an appeal concerning whether the exhibition of films is taxable under the category of Business Auxiliary Service (BAS), or whether a demand of service tax can be confirmed against the transfer or assignment of copyright of films under Copyright Service.

Background, Arguments, and Legal Interpretation

Factual Background

The assessee, M/s. Play House Motion Pictures Private Limited, is engaged in cinematographic film production, distribution, and the transfer or assignment of copyrights of films to various television channels, music companies, etc.

Procedural History

The department alleged that the assessee's activities were taxable under the category of Copyright Service or Business Auxiliary Service (BAS).

Due to non-payment of service tax, proceedings were initiated, and a show-cause notice was issued.

The Adjudicating Authority confirmed the demand, which was challenged by the assessee before the Tribunal.

Contentions of the Parties

Assessee’s Arguments: The assessee contended that the show-cause notice did not specify any clause under Section 65(19)(zzb) of the Finance Act, 1994, to justify taxing cinematographic film distribution under BAS.

In the absence of such specific invocation, the demand is prima facie unsustainable.

Revenue's Arguments: The department argued that the temporary transfer or permission to use copyright of cinematographic works and sound recordings qualifies as a taxable service under Section 65(105)(zzzt) of the Finance Act, 1994, read with Section 18 of the Copyright Act, 1957.

Tribunal's Observations & Analysis: The Tribunal observed that, as per Circular No. 109/3/2009-ST dated 23.03.2009, screening of films is not taxable unless the distributor leases out the theatre and the theatre owner receives a fixed rent.

“In such a scenario, the service would be categorized as ‘renting of immovable property’ and taxed accordingly.”

However, in this case, there was no allegation that the assessee had leased any theatres or that any fixed rent arrangements existed.

The bench further emphasized that mere transfer or assignment of copyright of a film does not amount to a taxable service under either Business Auxiliary Service or Copyright Service in this context.

Implications and Final Decision

Implications

This judgment provides clarity to film producers, distributors, and copyright holders, establishing that the transfer of copyright of self-produced films is not liable to service tax, unless the transaction squarely fits into a taxable service category under the Act.

Outcome

The Tribunal allowed the appeal, holding that the transfer or assignment of film copyright by the assessee is not liable to service tax under the Finance Act, 1994.

In this case the appellant was represented by Mr. M.S. Nagaraja, Advocate. Meanwhile, the respondent was represented by Mr. Rajesh Shastry, Advocate.