TaxTMI 
TaxTMI 
2013 (7) TMI 23
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....) except the rights covered under Section 13(1)(a) of the said Act. 2. Introduction - Service Tax on Copyrights: When service tax was levied on 'Intellectual Property Services' namely trademarks, designs, patents or any other similar intangible property, with effect from 10.9.2004, copyright was specifically excluded from the definition of Intellectual Property Rights (IPRs). Copyright is nothing but intellectual property right which explicitly remained outside the scope of service tax just to encourage authors, artists, etc. The Finance Act, 2010 has levied service tax on transferring temporarily or permitting the use or enjoyment of any copyright except the rights covered under section 13(1)(a) of the Copyright Act, 1957. 3. Services of copyright are taxable with effect from 1.7.2010. With effect from 1.7.2010, sub-clause (zzzzt) of clause (105) of Section 65 defines the "Taxable Service" as under: "Taxable service" means any service provided or to be provided to any person, by any other person, for - (a) transferring temporarily; or (b) permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957, except the rights covered und....
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....ion of India. 8. Case of writ petitioners is that Section 65(105)(zzzzt) is beyond the legislative competence of the Union of India. Under the constitutional scheme, for the demarcation of taxing powers between the Centre and the State, levy of sales tax/value added tax on goods, which includes the transfer of right to use any goods is the exclusvie taxing domain of the States and various States are currently trading intangibles like "Copyrights" as goods. Copyright is a form of intellectual property i.e., intangible property and State Legislature is levying value added tax on these transactions treating it as trading of goods or transfer of right to use. While on the one hand, assignment of these rights is treated as sale of goods by the State Legislature(s) and on the other hand it is treated as providing services, which is ultra vires the Constitution of India. From 2002, Parliament has amended Central Sales Tax Act to widen definition of "sale" to cover transfer of right to use the goods in exercise of powers under Entry 92A of the Union List and the Parliament cannot now treat the same transaction as "service" for levy of service tax. By enacting the new taxing entry to lev....
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....pondents, what is sought to be taxed is only the consideration of service charges received for value addition of assignment of temporary right or permission to use the copyright. Referring to various judgments of the Supreme Court, it is averred that Supreme Court upheld the legislative competence of the Parliament to levy service tax under residuary Entry 97 of List I of VII Schedule and necessary constitutional amendments were made giving authority to the Parliament to legislate all service taxes. The counter statement also refers to the nature of transactions to contend that they are only a temporary transfer of right or a mere transfer of right to use or enjoy the copyright for specified purposes, which according to the respondents, is a service provided by the person, who is the holder of the copyright. 12. Heard Mr.M.Venkatachalapathy, learned Senior Counsel; Mr.K.Vaitheeswaran; Mr.N.Prasad; Mr.Ravi and Mr.T.T.Ravichandran, learned counsels appearing for the wirt petitioners. 13. Onbehalf of Writ Petitioners the following contentions were raised:- Temporary transfer of Copyright is a "transfer of right to use goods" which is a sale in terms of Article 366(29A) read w....
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....andapam Association case (2004) 5 SCC 632; Association of Leasing and Financial Services Companies case (2011) 2 SCC 352; All India Federation of Tax Practitioners case (2007) 7 SCC 527 and Gujarat Ambuja Cements Limited case (2006) 3 SCC 1, the learned counsel submitted that the Hon'ble Supreme Court upheld the levy of service tax under Entry 97 of List I. It was submitted that the impugned levy of service tax on temporary transfer of copyright or permission to use or enjoyment is within the legislative competence of Parliament with reference to Entry 97 of List I of Seventh Schedule of the Constitution of India and the same is constitutionally valid. 16. We have also heard the submissions of Mr.Kanmani Annamalai, learned Government Advocate (T) appearing for State of Tamil Nadu and Mr.R.Ananda Kumar, learned counsel appearing for 4th Respondent in W.P.No.482 of 2011 and 5th Respondent in W.P.No.483 of 2011 and 231 of 2012. 17. Upon consideration of the rival contentions and averments in the Writ Petitions and counter statement, the following points arise for consideration in these Writ Petitions:- 1. Whether the taxable event provided under Section 65(105)(zzzzt) of ....
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....nce Act, 1994 defines "assessee" to mean the person responsible for collecting the service tax. The Service Tax was defined to mean tax chargeable under Chapter V. Taxable Service was defined to mean any service provided by stock brokers to an investor in connection with sale or purchase of securities listed by a recognised stock exchange; services rendered by the subscriber of the telegraph authority and services rendered by insurer to a policy holder. Section 66 stated that Service Tax shall be levied at the rate of 5% of the value of the taxable services provided to any person by service provider who was responsible for collecting the service tax. 21. Finance Act, 1998, was also to the same effect as that of the 1994 Act and in the 1998 Act, the list of notified services were increased to include advertising agencies, travel agencies, architects, entrepreneurs, clearing and forwarding agencies, credit rating agencies, customs house agents, practising charted accountants, cost accountants, real estate agents, security agencies etc. The Finance Act has been amended year after year in order to bring more services into the tax net, as well as to insert certain new provision found....
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....ans any work of visual recording on any medium produced through a process from which a moving image may be produced by any means and includes a sound recording accompanying such visual recording and "cinematograph" shall be construed as including any work produced by any process analogous to cinematography including video films. Section 2(ff) deals with communication to the public, which reads as under: 2(ff) communication to the public" means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or diffusion other than by issuing copies of such work regardless of whether any member of the public actually sees, hears or otherwise enjoys the work so made available. Explanation. - For the purposes of this clause, communication through satellite or cable or any other means of simultaneous communication to more than one household or place of residence including residential rooms of any hotel or hostel shall be deemed to be communication to the public. 26. As per Section 2(uu), producer means producer in relation to a cinematograph film or sound recording, means a person who takes the initiative and responsib....
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....transfer of right to use any goods, thereby to avoid tax evasion by devices by way of lease adopted by the Producer and the Distributor. 30. Mr.K.Vaitheeswaran, learned counsel for the petitioners drawing our attention to the decision of this Court in A.V.Meyyppan Vs. Commissioner of Commercial Taxes, Board of Revenue, Madras and another, (20 STC 115) submitted that the temporary transfer of copyright is considered as a transfer of right to use goods, which is a deemed sale in terms of Article 366(29A). Learned counsel further submitted that the copyrights in the Cinematograph films have been considered as goods as the items are subject to sales tax (VAT) by the State Legislature in terms of Entry 54 of List II and while so, Parliament cannot resort to Entry 97 of List I to levy service tax on the temporary transfer or permitting the use or enjoyment of the copyright. 31. Brief history of taxation of films under Sales Tax Laws:- In relation to taxation of films under Service Tax Act, there can be normal sale of film or sale by way of lease. In A.V.Meyyppan Vs. Commissioner of Commercial Taxes, Board of Revenue, Madras and another, (20 STC 115), the assessee, a producer of ....
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....e other form) invoked in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 33. Contention of petitioners is that the transactions between the producer and the distributor and the distributor and the exhibitor involve delivery of....
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.... 36. In 20th Century Finance Corporation Limited Vs. State of Maharashtra, (2000) 6 SCC 12 = (2000) 119 STC 182 (SC), the Hon'ble Supreme Court laid down the principles for determining the situs of lease sale transaction. The Hon'ble Supreme Court has held that the situs of lease sale lies in the State where the agreement is executed if the goods are available for delivery. The Hon'ble Supreme Court further held that if the goods are not available for delivery or there is no written agreement, then the sale will be deemed to have taken place in the State where the delivery is given. While so holding, the Hon'ble Supreme Court elaborated upon the scope of Article 366 Clause 29A and observing that the taxable event under Article 366(29A) is the transfer of right to use the goods and elaborately considering the scope of Article 366(29A), the Hon'ble Supreme Court held as under: "26. Next question that arises for consideration is, where is the taxable event on the transfer of the right to use any goods. Article 366(29-A)(d) empowers the State Legislature to enact law imposing sales tax on the transfer of the right to use goods. The various sub-clauses of clause (....
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....ht Act, 1957. In the case of Sales Tax Act, there would be "transfer of right to use the goods". Whereas under the Service Tax Act what is levied is temporary transfer/enjoyment of the goods. The pith and substance of both enactments are totally different. "Temporary transfer" or "permitting the use or enjoyment of the copyright" is not within the State's exclusive power under Entry 54 of List II. Therefore, there is no merit in the contention that the taxable event provided under Section 65(105)(zzzzt) is covered by Article 366(29A). 38. Point No.2:- Re.contention : Temporary transfer or use or enjoyment of the copyright is a sale of goods falling under Entry 54 of List II:- On behalf of the petitioners, learned counsel submitted that the agreements entered into between the producer and the distributor and the distributor and exhibitors (theatres) is patterned on different lines based on commercial exigency and the arrangement involves delivery of goods. Drawing our attention to various patterns of agreements in film industry, the learned counsel contended that such agreements involve delivery of goods for which sales tax is levied. On behalf of the petitioners, it was c....
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....e residuary power to Entry 97 is available only if such power is inter alia not reserved in favour of the States under any Entry enumerated in List II. 41. Reiterating the same submissions, Mr.Vaitheeswaran, learned counsel submitted that Copyrights are classified as intangible property and are accordingly treated as goods for levying VAT on the transfer of copyrights. The learned counsel further submitted that many States like Andhra Pradesh, Delhi, Maharashtra, Karnataka and West Bengal have exercised their powers to levy tax on sale of goods in terms of Entry 54 of List II to the Seventh Schedule of the Constitution and the Parliament cannot levy service tax on the goods, which are already subjected to VAT. 42. The learned Senior counsel Mr.M.Venkatachalapathi also submitted that the transfer of copyright is only sale of intangible goods and that it is only a temporary transfer of copyright and no service is provided and therefore levy of the service tax and the amendment - 65(105)(zzzzt) having resort to Entry 97 of List I are ultra vires the Constitution. 43. In short, the submission of all the writ petitioners is that temporary transfer of copyright or use or permit ....
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....porary basis for organising any official, social or business functions, but would also include other facilities supplied in relation thereto. No distinction from restaurants, hotels, etc. which provide limited access to property for specific purpose. 52. It may be noted that in recent times the service sector has grown phenomenally all over the world and, therefore, it was recommended by Dr. Raja Chelliah Committee in the early nineties that it should be taxed. Pursuant thereto, service tax was first levied in 1994 by way of the Finance Act. The power to levy such tax can be traced to Sl. No. 97 of List I of the Seventh Schedule and this Court in Laghu Udyog Bharati v. Union of India (1999) 6 SCC 418 found no lack of legislative competence as far as the levy of service tax was concerned. 53. It is also emphasised that a tax cannot be struck down on the ground of lack of legislative competence by enquiring whether the definition accords with what the layman's view of service is. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and choose objects and rates for taxation and has a wide discretion with regard thereto. We may in th....
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.... of the mandap-keeper cannot possibly be termed as a hire-purchase agreement of a right to use goods or property. The services provided by a mandap-keeper are professional services which he alone by virtue of his experience has the wherewithal to provide. A customer goes to a mandap-keeper, say a star hotel, not merely for the food that it will provide but for the entire variety of services provided therein which result in providing the function to be solemnised with the required effect and ambience. Similarly the services rendered by outdoor caterers is clearly distinguishable from the service rendered in a restaurant or a hotel inasmuch as, in the case of outdoor catering service the food/eatables/drinks are the choice of the person who partakes of the services. He is free to choose the kind, quantum and manner in which the food is to be served. But in the case of a restaurant, the customer's choice of foods is limited to the menu card. Again in the case of outdoor catering, customer is at liberty to choose the time and place where the food is to be served. In the case of an outdoor caterer, the customer negotiates each element of the catering service, including the price to ....
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.... Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and State Governments have powers to make laws. The service tax is made by Parliament under the above residuary powers. 46. In GUJARAT AMBUJA CEMENT LTD v. UNION OF INDIA [(2005) 4 SCC 214], the Writ Petitioners were customers or clients of Goods Transport Operators and Forwarding and Clearing Agents. One among the contention was that the levy of service tax on goods transport operators and forwarding and clearing agents, encroaches upon the State Government's power as defined in Entry 56 of List II of the seventh schedule to the Constitution and the Parliament could not by resorting to residuary Entry 97 of List I of the Seventh Schedule circumvent Entry 56 of List II and in the guise of levying service tax in fact levy a tax on the transport of goods. Noting that there is distinction between the object of tax, the incidence of tax and machinery for the collection of tax and legislative competence is to be determined with reference to the object of the levy and not with reference to its incid....
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....goods before they can be called upon to pay the taxes in respect of the carried goods. Similarly, passengers who are carried are taxed under the entry. But, usually, it would be inexpedient, if not impossible, to recover the tax directly from the passengers and so, it would be expedient and convenient to provide for the recovery of the said tax from the owners of the vehicles themselves. (See also Sainik Motors v. State of Rajasthan, ((1962) 1 SCR 517 = AIR 1961 SC 1480.) 28. Having determined the parameters of the two legislative entries the principles for determining the constitutionality of a statute come into play. These principles may briefly be summarised thus:- (a) The substance of the impugned Act must be looked at to determine whether it is in pith and substance within a particular entry whatever its ancillary effect may be [Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,AIR 1947 PC 60, 65, A.S. Krishna v. State of Madras, 1957 SCR 399 = 1957 CriLJ 409, State of Rajasthan v. G. Chawla, 1959 Supp. (1) SCR 904 = 1959 CriLJ 660, Katra Educational Society v. State of U.P, (1966) 3 SCR 328 = AIR 1966 SC 1307, D.C. Johar & Sons (P) Ltd. v. STO, 1971 (27) STC 120 (SC)....
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....f clearing and forwarding operations in any manner; 67. (m-a) in relation to service provided by a goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges; 30. As far as clause (j) is concerned it does not speak of goods or passengers, nor of carriage of goods nor is it limited to service by road or inland waterways. Clause (m-a) shows that the valuation of the service tax includes the freight charges, but is not limited to it. 31. It is clear therefore that Section 66 read with Sections 65(41)(j) and 67(m-a) in Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or passengers. The subject-matter of tax under those provisions of the Finance Act, 1994 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levies are to be measured on the same basis, but that does not make the levy the same. As was held in Federation of Hotel and Restaurant Assn. of India v. Union of India, (1989)....
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....the Constitution. It was held by this Court that although certain items of the service might have been referable to any other entry, the service element was the more weighty, visible and predominant. Therefore, the nature and character of the levy of the service tax was distinct from a tax on the sale or hire-purchase of goods and from a tax on land. 47. In ALL INDIA FEDERATION OF TAX PRACTITIONERS v. UNION OF INDIA, (2007) 7 SCC 527, the appeal was against the Division Bench Judgment of the Bombay High Court upholding the legislative competence of Parliament to impose Service Tax under Article 246 (1) read with Entry 97 of List I of the Seventh Schedule to the Constitution on practising Charted Accountants and Architects. On behalf of the Appellant Association therein it was contended that tax on profession was a State subject, and therefore, Entry 97 of List-I, cannot be invoked and that Parliament had no legislative competence to levy Service Tax. After analysing the object of enacting the Finance Act and interpreting the Taxing entries in the Seventh Schedule to the Constitution, it was held as follows: 33. Applying the above tests laid down in the aforestated judgments t....
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....een the two Groups of entries, namely, general entries and taxing entries. We are of the view that taxes on services is a different subject as compared to taxes on professions, trades, callings etc. Therefore, Entry 60 of List II and Entry 92C/97 of List I operate in different spheres. 48. In ASSOCATION OF LEASING AND FINANCIAL SERVICES COMPANIES VS UNION OF INDIA AND OTHERS (2011) 2 SCC 352, the controversy pertained to the validity of section 65 (12) and 65 (105) (zm) of the Finance Act 1994 as amended in so far as it seeks to levy service tax on leasing and hire purchase transactions. It was contended that it was beyond the legislative competence of the Parliament by virtue of Article 366 (29A) of the Constitution. In fact, identical contentions as raised in these Writ Petitions were raised before the Hon'ble Supreme Court, contending that hire purchase/leasing is deemed to be a sale and any attempt to levy service tax on the same transaction will amount to colourable exercise of power and when sales tax is paid for transfer of right to use the goods, particularly, when such transfer is a deemed sale under Article 366 (29A), it is not open to the Parliament to impose serv....
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.... composite price so that the full value of the hire-purchase price is taxed and to avoid the judgment in K.L. Johar's case whose implication was to narrow the tax base resulting in seepage of sales tax revenue. It is in that sense "splitting" of the contract needs to be understood. Thus, it cannot be said that Parliament divested itself of the power to levy service tax vide enactment of the Constitution (Forty-sixth Amendment) Act. Even in the Report of the Law Commission, it has been observed that "if a hire-purchase transaction results in a sale, sales-tax is undoubtedly leviable by the States. No doubt, it is difficult to determine the "sale price" for the purpose of the sales tax law but this has no bearing on the question of legislative competence" (p.26). 51. Thus, reliance placed by the appellant(s) on the expression "splitting up" in K.L. Johar's case is misconceived because the "splitting up" referred to in K.L. Johar's case was, as stated above, in regard to valuation and not in regard to legislative competence." 49. On the question whether State legislature has exclusive competence to levy tax on financial leasing services, under Entry 54 List II, it....
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.... sales tax specific. It was brought in to expand the tax base which stood narrowed down because of certain judgments of this Court. That is the reason for bringing in the concept of "deemed sale" under which tax could be imposed on mere "delivery" on hire-purchase [See Clause (c)] which expression is also there in the second limb of the said article." 50. As regards the power of the Parliament under Entry 97 List I, it was held as follows: 58. Now coming to the main point whether the whole field is covered by Entry 54 and that the levy of service tax is incompetent, it is important to note the language of Entry 97, List I and Article 248 except for the word "other" in Entry 97. This is because when one reads Entry 97 of List I with Article 246(1) it confers exclusive power first, to make laws in respect of matters specified in Entries 1 to 96 in List I and, secondly, it confers the residuary power of making laws by Entry 97. Article 248 does not provide for any express powers of Parliament but only for its residuary power. Article 248 adds nothing to the power conferred by Article 246(1) read with Entry 97, List I. In the context of an exhaustive enumeration of subjects of le....
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....llment paid towards repayment of the lease amount and the principal amount in such installments paid (See Notification No. 4/2006 - Service Tax dated 1.3.2006). In other words, service tax is leviable only on 10% of the interest portion. (See also Circular F. No. B.11/1/2001-TRU dated 9.7.2001 in which it has been clarified that service tax, in the case of financial leasing including equipment leasing and hire-purchase, will be leviable only on the lease management fees/processing fees/documentation charges recovered at the time of entering into the agreement and on the finance/interest charges recovered in equated monthly installments and not on the principal amount). Merely because for valuation purposes inter alia "finance/interest charges" are taken into account and merely because service tax is imposed on financial services with reference to "hiring/interest" charges, the impugned tax does not cease to be service tax and nor does it become tax on hire-purchase/leasing transactions under Article 366(29A) read with Entry 54, List II. Thus, while State Legislature is competent to impose tax on "sale" by legislation relatable to Entry 54 of List II of Seventh Schedule, tax on the ....
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....of the film to the distributor or exhibitor. The distributor in turn transfers copyright to the sub-distributor/area-distributor/ exhibitor. There are various modes of transaction in the film industry. It is therefore required to be seen whether those transactions between the producer and the distributor, distributor and sub-distributor or exhibitor are normal sale or deemed sale or temporary transfer of copyright, permitting to use or enjoyment of the copyright. 54. According to Petitioners, the transactions between producer and the distributor, distributor and sub-distributor or exhibitor involves delivery of goods i.e. positive prints or cubes of the picture, which amounts to sale within the meaning of Section 2(7) of the Sale of Goods Act, 1930. Article 366(12) of the Constitution has defined the word goods for the purpose of the Constitution as including all materials, commodities, and articles. The word goods has also been defined in Section 2(7) of the Sales of Goods Act, 1930 as meaning every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are ag....
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....Serial No.70 of Part-B of First Schedule to the Act. Serial No.70 in Part-B reads as under:- PART B [See sub-section (2) of Section 3] (Goods which are taxable at the rate of 4 per cent) Sl. No. Description of the goods Commodity Code Number 70. Intangible goods like Copyright, Patent, REP licence 2070 57. There have been several decisions of the Hon'ble Supreme Court on the interpretation of the word goods in the context of different State sales tax enactments. In number of decisions, the Hon'ble Supreme Court held that the word goods for the purpose of sale tax may be tangible or intangible property. In Tata Consultancy Services Vs. State of Andhra Pradesh, (2001) 4 SCC 629, the Hon'ble Supreme Court held as Under:- A 'goods', may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customised or non-customised satisfies these attributes, the same would be goods. 58. To contend that goods may be ta....
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....ormance of the film. Any surplus is shared between the producer and distributor, in a pre-set ratio (typically 1:2) after deducting entertainment tax, show rentals, commission, print costs and publicity costs. Effectively, the distributor becomes a financier in the eyes of the market. This is the most common channel available to high budget producers. 2. Commission Here, the distributor pays the producer the entire box office collection after deducting commission. So, the entire risk of box office performance of the film remains with the producer. This is the most common channel available to low budget producers. 3. Outright Sale Here, the producer sells all distribution and theatrical rights for a defined territory exclusively to a distributor. Effectively, the distributor becomes a producer in the yes of the market. So, the entire risk of box office performance of the film remains with the distributor. 63. In the Writ petitions, the petitioners have enumerated certain modes of business transactions between the Producer and the Distributor as between the Distributor and exhibitor. We feel it appropriate to briefly refer to those transactions. a. Outright Assignment: Ou....
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.... New Delhi to include operational or administrative assistance in any manner in its definition. The said Circular is under challenge in W.P.No.3948 of 2012, etc., batch. 65. Even though it was contended that the transaction is between the producer and the distributor and the distributor gets the absolute right over the cinematograph film, in reality, the distributor does not get the absolute rights. The distributor only gets few positive prints or cubes of the picture for the exhibition of the picture in the specified area. In otherwords, it is a temporary transfer of the copyright or permission to use or enjoyment for the limited period in the specified area. As rightly contended by the respondents, exclusive right of copyright ordinarily vests with the producer of the film. Even in outright assignment, the transfer is not absolute. In the case of a lease, it is for a given period. The levy of tax on any transaction is based on the criterion whether the transfer of right is permanent or temporary. So long as the producer does not fully relinquish his right over the copyright held by him, transfer of the right to use is purely temporary and in those cases, levy of service tax fo....
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.... photocards, audio cassettes, etc., for exhibition purposes in the said area. Producer shall announce the general release of the said picture in advance. Distributor: Distributor shall exhibit the prints of the film only in the areas covered under the agreement and shall not allow exhibition of the prints in any other areas. Distributor shall book good theatres at best possible terms and shall take prior consent of the producers and the booking of screening centres will be on terms basis or on minimum Guarantee basis. Distributor shall carry out the local and theatre publicities for promotion of the picture and the Distributor has to take prior written sanction and the budget approval from the Distributor. The Distributor shall surrender the rights with prints and publicities at the end of the Agreement period or in the event of sale to third party. 69. The above mutual activities would show that notwithstanding the distribution agreement, the producer retains the right to deal with and dispose of the rights of the agreement to any third parties. The Producer also retains the right to screen the picture over the satellite channels, Doordarshan channels, etc., a....
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....tor is sale of goods or transfer of right to use the goods. 72. Mr.Sundareswaran, the learned counsel for respondents has submitted that by and large there are following four popular approaches to transfer exhibition rights via exhibition contracts: 1. Theatre Hire Here, the exhibitor pays the distributor the entire box office collection after deducting entertainment tax and show rentals. So, the entire risk of box office performance of the film remains with the distributor. This is the most common channel for low-budget films, causing rank newcomers, with unproven track record. 2. Fixed Hire Here, the exhibitor pays the distributor a maximum lump sum irrespective of the box office performance of the film. Rental is not chargeable per show. Any surplus after deducting entertainment tax is retained by the exhibitor. Effectively, the exhibitor becomes a producer in the eyes of the market. So, the entire risk of box office performance of the film remains with the exhibitor. This is the most common channel for high budget films, casting established front-runners, with proven track record. 3. Minimum Guarantee + Royalty Here, the exhibitor pays the distributor a minimum lump....
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....e Court in the decision of B.S.N.L. Vs. Union of India, (2006) 3 SCC 1, to constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes: a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods - consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of the statute - viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others. 74. To satisfy the parameters/attributes as laid down in B.S.N.L. Vs. Union of India, (2006) 3 SCC 1, the goods must be available for delivery, there should be consensus as regards identity of goods, transferee should have a legal....
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....as to whether it is a sale or service. In this regard, it is pertinent to note that in these batch of writ petitions, when the Department sent communications to the producers informing them of the introduction of the said taxable service in the Union Budget 2010, the Producers were requested to furnish documents/ particulars relating to the rendering of said service for verification. As details called for were not furnished, reminder letters were sent and without complying with the Department's request for submission of the documents, the Producers approached the Court by filing writ petitions. Therefore, the nature of transaction in respect of assignment agreement dated 5.7.2010 could not have been examined by the Department. In any event, any one such transaction cannot be a ground to hold that the impugned provision is unconstitutional. 78. In INFO TECH SOFTWARE DEALERS ASSOCATION Vs. UNION OF INDIA 2010 (20) STR 289, (Madras), the challenge was to the legislative competence of the Parliament to impose service tax on software supplied to a customer pursuant to a end user licence agreement under section 65 (105)(zzzze). In the said case, identical contention, as raised in ....
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.... 81. Sofar as the levy of Central Excise Duty, the taxable event is manufacture goods and so far as Value Added Tax, the taxable event is the sale of the goods. Since, both these duties are payable, it cannot be generally stated that double taxation is not permissible under Law. Further, it is to be noted that the taxable event in the case of Central Excise Duty is not directly on the goods, but it is on the manufacture of the goods, whereas the Sales Tax/Value Added Tax is imposed with specific reference to the goods, which are sold and sale is the taxable event, sofar as Sales Tax/ Value Added Tax, whereas Service Tax is a value added tax. 82. The Hon'ble Supreme Court in BSNL vs. UOI, explained the "aspect doctrine" by observing that the doctrine merely deals with legislation competence. As held in Federation of Hotel & Restaurant vs. UOI, subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within the another legislative power. It was further held that there may be overlapping, but the overlapping must be in law and the transaction may involve two or more taxable events in ....
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....ament brought out the amendment Section 65(105)(zzzzt) bringing the activity of temporary transfer or permission to use or enjoy the copyright for consideration under the ambit of service tax net on the service provided by resorting to Entry 97 of List I and the same cannot be said to be ultra vires the Constitution. 86. Service Tax - Value Addition on activities:- As held by the Hon'ble Supreme Court, service tax is a tax on activity, is a value added tax and the value addition is on account of the activity, which provides value addition. It gives value addition to the goods manufactured or produced or sold on account of activities the film exhibited. Thus, service tax is imposed every time service is rendered. The taxable event in each exercise/activity undertaken by the service provider and each time, service tax gets attracted. 87. Elaborating upon the value addition and observing that value addition comes in an account of activity undertaken by the professional, in (2011) 2 SCC 352 [Association of Leasing and Financial Services Companies v. Union of India and others], the Hon'ble Supreme Court held as under:- Nature and character of service tax 38. In All I....
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.... on an object or on the event of taxation. Service tax is, thus a tax on activity whereas sales tax is a tax on sale of a thing or goods. 88. Film produced by the producer does not fetch any value unless it passes through various commercial activities including the distribution agreements and gets exhibited. As held by the Supreme Court, service tax is a "value added tax, which in turn, is a general tax, which applies to all commercial activities involving production of goods cinematograph films and provision of services from the stage of production negative of the films are made till it gets exhibited in theatre or exploited through other media. Lot of economic/commercial activities are involved. Those commercial activities amounting to temporary transfer of copyright or permitting use or enjoyment of copyright, Parliament is well within its competence to levy service tax. Transfer of right to use the goods or permission to use the copyright or enjoyment of copyright operate in different fields. There may be overlapping. The impugned legislation cannot be held to be vitiated merely because there is overlapping and that both sales tax and service tax becomes leviable. 89. Poi....
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....n v. G. Chawla (1959 Supp. (1) SCR 904, Katra Educational Society v. State of U.P. 1996 (3) SCR 328, D.C. Johar & Sons (P) Ltd. v. STO 1971 (27) STC 120 and Kannan Devan Hills Produce v. State of Kerala (1972) 2 SCC 218]. (b) Where the encroachment is ostensibly ancillary but in truth beyond the competence of the enacting authority, the statute will be a colourable piece of legislation and constitutionally invalid (A.S. Krishna v. State of Madras 1957 SCR 399, , A.B. Abdul Kadir v. State of Kerala (1976) 3 SCC 219, SCC at p. 232 and Federation of Hotel & Restaurant Assn. of India v. Union of India , SCC at p. 651). If the statute is legislatively competent the enquiry into the motive which persuaded Parliament or the State Legislature into passing the Act is irrelevant (Dharam Dutt v. Union of India 2004 (1) SCALE 425). (c) Apart from passing the test of legislative competency, the Act must be otherwise legally valid and would also have to pass the test of constitutionality in the sense that it cannot be in violation of the provisions of the Constitution nor can it operate extraterritorially. (See Poppatlal Shah v. State of Madras 1953 SCR 677S.)" 92. The legislative compe....
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....e Expenditure Tax Act, 1987 enacted by Parliament. The Act envisaged a tax at 10 percent ad valorem on chargeable expenditure incurred in the class of hotels, wherein room charges for any unit of residential accommodation are over Rs. 400/- per day per individual. The chargeable expenditure included expenditure incurred on payments made in such class of hotels in connection with the provision of accommodation, residential or otherwise, food or drink etc. The challenge was on the ground that Entry 62 in List II conferred exclusive power on the State Legislature to levy tax on luxuries and Entry 54 in List II empowered the State to levy tax on the sale of goods. The contention was that since the expenditure tax and tax on the sale of goods were covered by the Entries in the State List, there was nothing left for Parliament to tax. In the context of the said controversy, the Hon'ble Supreme Court held as under:- 14. ...... Indeed, the law 'with respect to' a subject might incidentally 'affect' another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The sam....
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....sale) by the Constitution (46th amendment) Act, and the said subject matter can be taxed only under Entry 54, list II, and it cannot be taxed under Entry 97- List I. Reliance was placed on the decision in BHARAT SANCHAR NIGAM LTD., (2006) 3 SCC 1, to contend that of all the different kinds of composite transactions the drafters of the 46th amendment chose three specifications, works contract, hire purchase contract and catering contract to bring within the fiction of deemed sale and of these three, the first and third involve a kind of service and sale at the same time and hire purchase does not involve a sale and service and therefore, service tax cannot be levied on the interest / finance charges, which was sought to be done. 97. Rejecting the contention it was held that financial leasing services are sought to be taxed under section 65(12)(a)(i), the taxable event is indicated in section 65 (105)(zm) and the provision operates qua an activity of funding/financing of equipment/ asset under equipment leasing under which a lessee is free to select, order, take delivery and maintain the asset. It was held that the taxable event is a service which is rendered by the finance compan....
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....e has been made to the 'aspect of legislation', wherein the Hon'ble Supreme Court held a legislature while legislating with regard to matters within its competence should be deemed to know its limits and its legislative authority and should not be deemed to be legislating beyond its jurisdiction. One thing that has always got to be kept clear in once mind is that there may be more than one aspect with regard to a particular subject matter. 101. Therefore, in the light of the legislative entries with which we are concerned in these batch of cases, two different activities could properly be regarded as two different matters for taxation. In other words, there could be two enactments each in one aspect conferring the power to impose a tax upon goods. Therefore, the impugned legislation cannot be held to be vitiated, merely because there is an element of overlapping in that both Sales Tax and Service Tax becomes leviable on the same assessee in respect of the same goods. We have discussed about the various aspects of the transaction between the parties, which were culled out from copies of the agreements, which were filed along with the writ petitions. From the terms and....
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....the decision relied on by the learned counsel does not support the petitioners' case. 105. Mr.Sundareswaran, learned counsel for Respondents submitted that to test the validity of the provision, mode of computation is not relevant and that it has to be tested on the parameters of S for Subject; P for Person; R for Rate and M for Measure of Tax. As rightly contended by the learned counsel for Respondents, basis of computation and ultimate economic results cannot be a ground to challenge the vires of the impugned provision. 106. Economic concept of service tax:- The source of the concept of service tax lies in economics. It is an economic concept. It was evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. 107. Learned counsel for Respondents submitted that huge money is involved in film industry and host of commercial activities are involved right from the box to theatrical exhibition and service tax is a value added tax on those c....