2026 (1) TMI 1519 - AT - Service Tax

Levy of service tax on marketing and promotion activities by rights assignees rejected; activities held not taxable, appeal allowed

The dispute addresses whether marketing and promotional activities by TV channel right-holders constitute a taxable 'service' under the Finance Act. The ... Levy of service tax on marketing and promotion activities - broadcasting and operation of various TV Channels - Definition of 'service' and requirement of service provider, service receiver and consideration - Declared service of agreeing to do or refrain from an act under Section 66E(e) - Distinction between promotion of assigned music rights and promotion of films - HELD THAT:- On careful reading of the definition of ‘service’ under Section 65B(44) of the Finance Act, 1194 read with Section 66B ibid, it is clearly provided therein that the activities undertaken shall be covered under the purview of the definition/interpretation of ‘service’, if the basic requirement of (i) service provider (ii) service receiver (iii) consideration for the activity, are present. In the present matrix of the case, the appellants have obtained music and song video rights from the Film Producer Companies (FPCs) under a contract and the appellants have become the right holders during the contractual period. Thus, the appellants are not in ‘service provider’ and ‘client’ relationship with the persons to whom they had contracted to and further, the appellants are in no way promoting the sale of goods or services belonging to the rights assignor. It is not the case of Revenue, that service tax demands have been confirmed on the ground that such temporary transfer of copy rights is subjected to service tax levy as ‘intellectual property right’. But the case of Revenue is by treating the various expenditures incurred by the appellants for marketing, as consideration, it is interpreted that the appellants have rendered service to the FPCs. From the various clauses of the agreement and the number of activities carried out by the appellants, it could be clearly concluded that the appellants are carrying out the permitted activities in respect of the assigned rights of music and song videos for certain consideration detailed therein and is not providing any service for the FPCs/ assignors, in any manner, and more specifically for marketing of film. Thus, we are of the prima facie view that such activities of the appellants cannot be considered as taxable service rendered for the FPCs, as their clients. Since we are deciding the issue on merits of the case and as the issue under dispute relates to interpretation of the activity whether, it amounts to service or not, we are not going into the details of invocation of extended period of time for its examination by us in the present case. Thus, we are of the considered view that activities undertaken by the appellant in the present set of facts are not liable to service tax under the Finance Act, 1994. Therefore, the impugned order dated 18.07.2024 is liable to be set aside to the extent it had confirmed the adjudged demands proposed in the SCN including imposition of penalties on the appellants. Accordingly, by setting aside the impugned order dated, the appeal filed by the appellants is allowed in favour of the appellants. In the result, the appeal is allowed in favour of the appellants by setting aside the impugned order. Issues: Whether the marketing and promotion activities and related amounts undertaken/recouped by the assignee (Zee) in music assignment agreements amount to a 'service' leviable to service tax under Section 66B read with the definition of 'service' in Section 65B(44) (including declared service under Section 66E(e)) of the Finance Act, 1994 for the period April 2016 to June 2017.Analysis: The Tribunal examined the contractual scheme of assignment (Articles 2, 10 and 14) and the commercial matrix under which appellants acquired exclusive copyrights and committed to spend specified marketing amounts as part of consideration/commitment. The analysis distinguishes between (i) activities undertaken by the assignee for exploitation of rights acquired for its own commercial benefit and (ii) a service provided by one person to another for consideration. The Tribunal reviewed the statutory definition of 'service' (Section 65B(44)), the declared service provision (Section 66E(e)) and authorities on whether contractual clauses requiring payment or expenditure amount to an agreement to do or tolerate an act constituting a declared service. Reliance was placed on precedents where amounts contractually recoverable or penal/recoupment sums were held not to constitute consideration for a service to the counterparty where the primary intent and benefit flowed to the payer/assignee. Applying these principles, the Tribunal found that the marketing/promotional activities were carried out by the appellants to exploit rights they had acquired (principal-to-principal commercial exploitation) and not as a service rendered to the assignors; the contractual obligations to spend for promotion formed part of the commercial consideration/arrangement for assignment of rights rather than an agreement to provide a taxable service to the assignors.Conclusion: The activities and amounts in dispute do not constitute a 'service' leviable to service tax under Section 66B read with Section 65B(44) or as a declared service under Section 66E(e). The impugned order confirming service tax, interest and penalties is set aside and the appeal is allowed in favour of the appellants.