A group of top film production houses have obtained a major relief from payment of service tax, running to several crores, with the Madras High Court setting aside demand notices issued to them for having assigned satellite rights of their movies perpetually to various television channels before the implementation of Goods and Services Tax (GST) in July 2017.
Justice Anita Sumanth allowed all writ petitions filed by SuperGood Films, Wunderbar Films, Vendhar Movies and AGS Entertainment through their counsel Joseph Prabhakar.
She, however, granted liberty to the tax officials to initiate fresh proceedings after bearing in mind the observations made by her in the judgement and conclusions arrived on questions of law. The judge pointed out that that the services provided by a holder of Intellectual Property Rights (IPR) was also taxable under service tax law and the journey of taxation of IPR services commenced from September 10, 2004 with the introduction of Section 65 (55b) to the Finance Act of 1994.
Till May 15, 2005, all kinds of transfer of IPR were subjected to service tax.
Temporary IPRs
However, thereafter, it was made clear that only temporary assignment of IPR would be liable to payment of service tax.
In so far as the present writ petitioners were concerned, they had paid service tax wherever the copyrights of their movies had been assigned permanently and not paid tax only in the case of assignment of rights perpetually. Claiming that the word ‘perpetually’ had been added to the agreements relating to satellite rights only to escape from the liablity of paying service tax, the revenue officials contended that exemption from payment of tax could be extended only if the rights of a movie as a whole had been transferred permanently by the producer to another person.
It was also argued that assignment of individual rights over different aspects of the same movie should be construed only as temporary transfer liable to be taxed.
The judge rejected the contention in toto and said, it was a perverse argument that runs counter to the statutory provisions. She also said, tax could not be levied merely on suspicion of attempt to evade.
