Copyright exclusion defeats service tax on royalty paid for use of licensed visual images.

Royalty paid for the right to use Bruce Lee visual images was treated as consideration for copyright-related rights, not taxable Intellectual Property Rights Service under the Finance Act, 1994. The licence covered use of visual images embodied in the property supplied by the foreign licensor, and those images were characterised as copyright within the Copyright Act, 1957, including artistic work under section 14(c) and, alternatively, computer programme-related rights under section 14(b). Because copyright was excluded from the scope of Intellectual Property Rights Service during the relevant period, the tax demand could not be sustained and was held unsustainable.

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Issues: Whether the royalty paid for the right to use visual images of Bruce Lee amounted to taxable Intellectual Property Rights Service under the Finance Act, 1994, or whether it was excluded as copyright.

Analysis: The permission granted under the licence agreement related to the use of visual images embodied in the property supplied by the foreign licensor. Such visual images were treated as copyright within the meaning of the Copyright Act, 1957, including artistic work under Section 14(c) and, alternatively, computer programme-related rights under Section 14(b). During the relevant period, copyright was specifically excluded from the ambit of Intellectual Property Rights Service under the Finance Act, 1994. Therefore, the demand could not be sustained under the alleged tax category.

Conclusion: The royalty payment was not taxable as Intellectual Property Rights Service and the demand was unsustainable.

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