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2019 (6) TMI 110 - HC - Service TaxChallenge to show cause notice (SCN) - Intellectual Property Right service - producers/purchasers of cinematograph films who have assigned some part of their copyright in the cinematograph films to television channels - Maintainability of appeal - alternative remedy - HELD THAT:- It is all too well settled that where a legal infirmity is pointed out and established, there is no fetter on this Court to consider the validity or otherwise of such order of assessment of even a show cause notice. The golden rule of guidance is that, as a rule, the court will exercise extreme restraint in interfering in such matters, except where the petitioner satisfies the Court that one or more of the following exceptions exist in the case in question, bearing in mind that the flaw alleged should go to the root of the matter and should be purely legal in nature. Instances of 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. The applicable provisions in question straddle two statutes – the Finance Act 1994 levying Service tax and The Copyright Act 1957. The interpretation 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. Taxability of IPR and copyright service - HELD THAT:- In the present case, there is no dispute with the position that the petitioners are producers or purchasers, and thus, owners of the copyright in cinematograph films - The cinematograph film holds a copyright in its own right, as a whole. However, the film, as an asset, comprises of various smaller but equally important components, such as the script, screenplay, background score, song lyrics, melody, instrumentation, orchestration, the use of light and camera work, to name a few. While the sum total of these inputs results in a film, the copyright of which will be held by the producer, each component thereof carries an independent and distinct copyright. This has given rise to the expression, ‘bundle of rights’, as per which the film holds a copyright by itself and also comprises of small, but equally distinct rights within itself. It is the lack of appreciation of the aforesaid point that, in my view, is the fundamental and fatal flaw in the impugned show cause notice and orders of assessment. 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 the fact that the taxable service under Service Tax Law is of ‘any copyright’ denoting all rights, that which vests in film as a whole, or any of the smaller but equally important rights comprised in the making of the film itself. The impugned notice and orders-in-original, to the extent to which they do not indicate appreciation as well as application of the aforesaid, are erroneous in law and are liable to be quashed. In the present case admittedly all agreements use the term ‘perpetual transfer’ and some transfer the asset specifically for a period of 99 years, both in excess of the period of 60 years set out under the provisions of the CR Act. The assignment is, simplicitor, permanent/perpetual and seen not temporary. In this backdrop, the conclusion of the respondents to the effect that a perpetual transfer or a transfer for 99 years, though in excess of the period stipulated in the Act, is temporary, appears, to me, fundamentally unsound and defies logic. Petition allowed.
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