2017 (4) TMI 337 - AT - Service Tax

Tribunal rules in favor of music licensing companies, rejects penalty for non-registration

Commissioner of Service Tax, Mumbai -II Versus Indian Performing Rights Society Ltd And (Vice-Versa)

Commissioner of Service Tax, Mumbai -II Versus Indian Performing Rights Society Ltd And (Vice-Versa) - 2017 (3) G. S. T. L. 523 (Tri. - Mumbai) Issues Involved:1. Taxability of the amount received and/or retained by M/s Phonographic Performance Ltd and M/s Indian Performing Rights Society Ltd as consideration for rendering 'club or association service.'2. Imposition of penalty on M/s Phonographic Performance Ltd for failing to register under section 77 of the Finance Act, 1994.Issue-Wise Detailed Analysis:1. Taxability of the Amount Received and/or Retained by the Assessees:M/s Phonographic Performance Ltd:- The company acts as a license issuing authority for public performance and broadcasting of sound recordings, collecting license fees/royalties which are then distributed to the owners of the rights after deducting administrative expenses.- The tax authorities argued that the amount retained by M/s Phonographic Performance Ltd for administrative expenses is a consideration for rendering 'club or association service' and is thus liable to tax under the Finance Act, 1994.- The appellant contended that the invoices issued for the use of copyright material were categorized under 'copyright service' (section 65 (105) (zzzzt) of the Finance Act, 1994), as upheld by the Hon'ble High Court of Bombay in the Indian National Shipowners’ Association v. Union of India case. The introduction of a new taxable category precludes the activity from being taxed under a different head.- The Tribunal was convinced that the activity of rendering 'copyright service' from July 2010 would detract from taxability as a provider of 'club or association service.'M/s Indian Performing Rights Society Ltd:- This society comprises members who own copyrights in musical and literary works. Members assign their rights to the society, which then negotiates with potential users and issues licenses.- The tax authorities sought to levy tax on both the membership fees and the amount retained for administrative expenses.- The appellant argued that the transaction is akin to a sale by the member to the society and then by the society to the user, and that no service is rendered for a consideration. They cited the principle of mutuality, as upheld by the Hon'ble Supreme Court in Performing Rights Society v. Commissioner of Income Tax and the Hon'ble High Court of Jharkhand in Ranchi Sports Club Ltd v. Chief Commissioner of Central Excise and Service Tax, Ranchi Zone.- The Tribunal observed that the mere existence of membership fees and participation in common expenses does not automatically render the receipts taxable. The impugned order failed to demonstrate that a service was rendered by the appellant to its members.2. Imposition of Penalty on M/s Phonographic Performance Ltd:- Revenue was aggrieved that the adjudicating authority did not impose a penalty under section 77 for failing to register, despite imposing penalties under other sections.- The Tribunal noted that the demand of tax itself fails, and consequently, the question of penalty does not arise.Conclusion:- The Tribunal concluded that both M/s Phonographic Performance Ltd and M/s Indian Performing Rights Society Ltd are not liable to be taxed for 'club or association service' as their activities are mandated by law under the Copyright Act, 1957, and thus fall under the exclusion of 'any body established or constituted under any law for the time being in force.'- The appeal of Revenue regarding the imposition of penalty was rejected, and the appeals of M/s Phonographic Performance Ltd and M/s Indian Performing Rights Society Ltd were allowed.