TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 110
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...., 1994 (in short 'Act'), relating to 'Intellectual Property Right' service. 2. Heard the detailed submissions of Mr.Joseph Prabakar, for Vendhar Movies, (WP Nos. 30085 of 2018), Super Good Films Private Limited (W.P.No.14425 of 2018) and Wunderbar Films Private Limited (W.P.No.29206 of 2018 & W.P.No.5131 of 2019), Mr.AR.L.Sundaresan, learned Senior Counsel, for Ms.Radhika Chandrasekhar, learned counsel for AGS Entertainment Private Limited (W.P.No.1199 of 2019), Mr.V.Sundareswaran, learned Senior Panel Counsel, Mr.Noorullah learned Standing Counsel and Ms.Seetha Lakshmi, learned Standing Counsel, for the respondents. The writ petitions, annexures and the case laws cited at the Bar have been studied and considered in detail. 3. I must, at the outset, make it clear that the veracity or otherwise of the impugned show cause notice and orders-in-original are taken up for examination, solely since they appear to adopt a stand not in consonance with the relevant provisions of law, both those in the Act as well as in the Copyright Act, 1957 (in short 'CR Act'). This Court has not concerned itself with any factual particulars, except for the limited purpose of appreciating and adjudicatin....
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....ic through television broadcast. 8. The salient features of the arrangements entered into by the petitioners with distributors/exhibitors are common across the writ petitions and broadly set out below. The narration to follow also takes into account the admitted facts, the relevant features of the assignment agreements and the submissions on merits advanced by both parties: * All petitioners are companies engaged in the production and distribution of cinematographic films/feature films/movies. * Agreements were entered into for distribution of cinematograph films produced by the petitioners, visual recording of cinematograph film, accompanying sound track and all other features of the film which constitute an asset/assets in which copyright subsists. * Assignment agreements are ala cso entered into in respect of films purchased by the petitioners for theatrical distribution. * As film producers, the entire copyright(s) comprised in the cinematograph film belongs to them and they are entitled to transfer such copyright to distributors for theatrical exploitation in respect of a demarcated area. * The Cinematograph film is also capable of being exploited in respect of terr....
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....sue in question was well within the knowledge of the service tax department from as early as in 2010 when one of the petitioners in this batch, AGS Entertainment Private Limited, along with several other similarly placed assesses, had approached this Court challenging the vires of the provisions of Section 65(105)(zzzzt). After completion of pleadings, a Division Bench of this Court had upheld the validity of the provision vide order dated 26.06.2013. Thus the department was well aware of the business activities of the petitioners', specifically the issue concerning transfer of copyrights, both temporary as well as permanent, that arise in these cases. However, show cause notices ('SCN') were issued belatedly for periods prior to five (5) from date of issuance of the notice, invoking the period of extended limitation. * In the case of AGS Entertainment, the SCN was issued on 17.01.2017 for the period 01.07.2010 to 30.06.2012 under the category 'copyright services' in terms of Sections 65(105)(zzzzt) and 66E(c) for the period 01.04.2013 to 31.03.2015 invoking the extended period of limitation permitted under the proviso to Section 73(i) of Finance Act 1994. Thereafter, a statement....
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....thers. AGS make commercial exploitation of copyright in many ways including theatre rights, satellite and television rights, DVD rights dubbing and remake rights, etc. Further, these rights are granted to various people simultaneously for exploitation in different regions. Entire copyright should be transferred to the other person to constitute permanent transfer or perpetual transfer which is not so in the case of AGS'. Therefore, in order to constitute a perpetual transfer, the entire rights in relation to the film would have to be transferred by the producer. According to the respondents, the issue has been dealt with by the Division Bench in detail, in the case of AGS Entertainment (supra), which settles the matter and thus, the contentions of the petitioners would have to be rejected. * For the aforesaid reasons, on merits, the transactions should, according to the Department, be held to be liable to tax. * Mr.V.Sundareswarn, learned Senior Panel Counsel, for the Department, in all fairness, does not dispute the position that all agreements for transfer/assignments are 'in perpetuity' and specifically states so, which I record. 9. It is on the basis of the above admitte....
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....such illegality may be culled from several judgements of the Supreme Court to be (a) a challenge to the constitutionality or vires of a statutory provision (b) a bar of limitation (c) assumption of jurisdiction by the officer where none exists (iii) patent and apparent illegality in the framing of the order, in contravention of the statutory provisions in play. Of course, in determining the aforesaid, the Court will not embark upon an examination of disputed facts and will concern itself solely with the legal provisions involved, and their interpretation. Since the interpretation of the law cannot be undertaken in a vacuum, the facts admitted by all parties to the lis shall form the backdrop for such application and analysis of the applicable legal provisions. 13. It is indeed correct that a Division Bench of this Court in the case of AGS Entertainment Private Limited (supra) considered a challenge to the provisions of Sections 65(105)(zzzzt) of the Finance Act, 1994 bringing within the ambit of service tax income generated from 'temporary transfer or permitting the use or enjoyment of any copyright' as defined under the CR Act. At paragraph 59, the Division Bench frames the issu....
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....retation and interplay adopted by the Revenue is wholly contrary to the basic scheme of the statutes, particularly the CR Act, and if such interpretation is left untouched, the purport and scheme of both statutes would stand distorted. It is on the aforesaid premise that the writ petitions have been filed. Whether the petitioners' are correct in their averments and allegations against the Revenue is a different matter. However, one thing is clear. The lis before the Division Bench is entirely different from the lis projected before me. For the aforesaid reasons, I do not believe that the conclusion of the Division Bench in the case of AGS Entertainments impinges on the maintainability of the present writ petitions. 16. As far as the other decisions relied upon by the Revenue are concerned, they are all distinguishable in law in so far as they relate to Writ Petitions filed challenging orders of the Customs, Excise and Service tax Appellate Tribunal (CESTAT) (United Bleachers, Royal Bank of Scotland and DLF Gold Resort (supra)), and an Appeal filed in terms of section 130 of the Customs Act, Sri Vasavi Gold & Bullion Pvt. Ltd (supra), all turning on the question as to whether the ....
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....Limited and have temporarily assigned and permitted the use and enjoyment of the copyright of the movie produced by them for a perpetual period for a consideration of Rs. 3,00,00,000/- and Rs. 2,25,00,000/- respectively; * From the assignment agreement entered with M/s Sun TV, it appears that the assignment of copyright for the broadcast of the films will be restricted only to the rights specified in clause 4 the agreement and M/s Vendhar Movies have clearly retained their ownership with respect to other rights other than those assigned to the assignees as discussed in para 3 of this notice; that the consideration received by M/s Vendhar Movies covered under the taxable services- Copyright Service for the period from 1.4.2014; * Though the intention of Vendhor Movies was to assign temporary transfer, the terms 'perpetual' has been mentioned only to claim exemption from payment of service tax; that further, from what was discussed in above paras, it appears that, the temporary transfer of satellite rights is also classifiable and liable to service tax under the category of taxable services. However, Vendhar Movies have not paid the service tax on the consideration received by th....
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....ied period of time. 5.5. Further these transactions cannot be called as absolute sale as in the case of sale the buyer will acquire all the rights of the seller which will enable him to exploit such acquired rights for unrestricted exploitation and the seller would cease to have any rights which is not the case in the transactions discussed above. In the case of first copy sale, all forms of rights in respect of the films in question, are transferred to the Buyer, to the exclusion of the seller / producer. This is clearly not the case in the impugned agreements as Wunderbar do not cease to hold rights on the films. While the producer retains his right to exploit that film, there is no transfer of right to use the goods amounting to sale within the meaning of Article 366(29A). On the other hand, it is a temporary transfer of copyright or permitting its use or enjoyment by the lessee. As long as the producer does not fully relinquish his right over the copyright held by him, transfer of right to use is purely temporary and levy of service tax for such transfer of copyright would apply.' Extract from Order-in-Original dated 20.08.2018 in W.P.1199 of 2019: . . . . 79. Exclusion....
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....t of Copy right read as follows: "Notice of relinquishment.- The author of a work desiring to relinquish under section 21 all or any of the rights comprised in the copyright in the work shall give notice to the Registrar of Copyright in accordance with Form." 23.3. I find that no relinquishment as contemplated in the Section 21 of the Copyright Act, 1957 or Rule 5 of Copyright Rules, 1958 was performed by AGS. In the absence of relinquishing the right as contemplated in the copyright Act the ownership of the right does not shift to the assignee but reverts back to the assignor after the said period in the agreement. Therefore I hold that such copyright is only 'temporary' and cannot be called permanent in view of the copyright act and without relinquishing the assignor has temporarily permitted the use of enjoyment of copyright and such an assignment thereafter cannot be considered permanent by any sort of reasoning whatsoever. Secondly, I find that the argument of the assessee that the transfer can only be 'permanent' as it is for 99 years whereas Copyright Act itself is fighting piracy, these arguments are merely theoretical and no meaningful conclusion that the transfer ....
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.... transfer of copy right. The suppression with intent to evade payment, on part of AGS is proved beyond doubt and proviso to Section 73(1) of the Finance Act, 1994 has been rightly invoked in the instant case and the demand of service tax for the period 2010- 11 (July 2010 to March 2011) to 2014-15 is justified. . . . . 28.2. In the instant case, as suppression of the material facts have been established beyond doubt as discussed above, I consider this as a fit case for imposing penalty under Section 78 of the Finance Act, 1994. AGS's intention to evade is established beyond doubt in as much as he entered into assignment agreements incorporating clauses like 'permanent transfer/perpetual transfer/assigned for perpetuity etc., which are applicable to 'goods' and not 'intellectual property' like copyright and thereby misleading the dept that no service is provided by them. But for the detailed investigation done, this evasion could not have been unearthed and AGS make themselves liable for mandatory penalty. This gets compounded by the fact that there is a High court Judgment in department's favour in which AGS is also a party. Therefore AGS cannot also claim that the matter invol....
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....s follows:- '14. Meaning of Copyright.- For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:- (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commerci....
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....her for the whole term of the copyright or any part thereof: . . . . (2) Where the assignee of a copyright becomes entitled to any right comprised in the copyright, the assignee as respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly. (3) In this section, the expression "assignee" as respects the assignment of the copyright in any future work includes the legal representatives of the assignee, if the assignee dies before the work comes into existence. 25. Sub-Section (2) recognizes the separate and concurrent rights of an assignor & assignee in respect of the assets and underlying rights, assigned or retained, as the case may be. Section 19 stipulates the mode of assignment stating that 'no assignment of the copyright in any work shall be valid unless it is in writing signed by the assignor or by his duly authorised agent.' 26. The provisions of Section 56 of CR Act also makes it clear that an asset comprises of several components, each holding an independent copyright in its own right. The Section states thus....
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....iracles in photography, more than song, dance and dialogue and indeed, more than dramatic story, exciting plot, gripping situations and marvellous acting. But it is that ensemble which is the finished product of orchestrated performance by each of the several participants, although the components may, sometimes, in themselves be elegant entities. Copyright in a cinema film exists in law, but Section 13(4) of the Act preserves the separate survival, in its individuality, of a copyright enjoyed by any 'work' notwithstanding its confluence in the film. This persistence of the aesthetic 'personality' of the intellectual property cannot cut down the copyright of the film qua film. The latter right is, as explained earlier in my learned brother's judgment, set out indubitably in Section 14(1)(c)... 30. It is thus, too well settled, that an asset, such as a cinematograph film, comprises of a bundle of rights. Setting this principle against the context and purpose of Section 65(105)(zzzzt), the 'right' mentioned therein, relates to the right in the film as well as each of such rights comprised in the film. The interpretation accorded by the Department tends to ignore t....
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.... author to relinquish his copyright specifically using the phrase 'all or any of the rights comprised in the copy rights in the work'. This supports the conclusion that a work may either comprise of a 'single right' or a 'bundle of rights', some that may be relinquished and others that are pursued and will survive. 33. The petitioners before me all confirm that the documentation entered into by them with Television Channels specifically uses the word 'perpetual' and this is specifically and fairly admitted by Mr.Sundareshwaran. Apparently, in such a case, the transaction clearly stands outside the ambit of service tax. The stand of the Department is that the use of the word 'perpetual' is a mere camouflage. The Assessing Authority proceeds on the basis that the use of the words 'in perpetuity' are not in consonance with the spirit of the agreement and is only used to disguise the actual fact that the transfer was temporary and to avoid tax. However, this is only a suspicion and nothing is brought on record to prove the allegation. 34. As regards the use of the word 'revocable' in some agreements, the argument of the petitioners that the revocability is solely restricted to those....
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....lying upon the decision of a Coordinate Bench of the Tribunal in the Shri Balaji Communications case? 5.Whether the learned Income Tax Appellate Tribunal's findings are perverse on the facts and circumstances of the case, and therefore liable to be set aside?" 37. The Division Bench was concerned with the case of an individual who was carrying on business in purchase and sale of Telugu Films and whether she was liable to deduct tax at source under Section 194-J of the Act on the amounts paid for purchase of film rights. The case of the Department was that the amount paid for purchase of film rights was of the nature of royalty liable to deduction of tax at source under Section 194-J of the Act. The rights had been transferred by the petitioner for a period of 99 years and the assessee contended that the transfer for 99 years would constitute an outright sale of all rights in the film whereas the Department contended that the copy right in the film was itself only for a period of 60 years. While deciding this issue the Division Bench of this Court in Para-17 says as follows: '17.We have seen the various conditions contained in the sample transfer deed and there is a transfer of....