The Revenue Department has contested the petition filed by PVR Pictures in the Delhi High Court against the Government’s decision to levy service tax on copyright services such as sale of music rights, sale of direct-to-home (DTH) satellite TV rights, and screening in cinemas. In a counter affidavit filed in the court, the Revenue Department has said that temporary transfer of rights to copy in a limited manner will be chargeable to service tax.

Speaking with Bar & Bench Economic Law Practice Partner, Tarun Gulati (who represents PVR Pictures) said, “The Finance Ministry’s stand is that the Union is entitled to tax temporary-transfers, whereas the State can tax only permanent-transfers of copyright. This is the stand taken by them in the counter affidavit saying, that only permanent transfers were covered under the VAT (Value Added Tax) legislation, not temporary transfers. In our rejoinder we have pointed out that it is absolutely wrong because under Article 366(29A)(d), the transfer of right to use is a temporary-transfer, which is covered under the definition of sale.”

Tarun added on to say, “The reason why this constitutional amendment was made was precisely to cover transactions which were in the nature of lease of films etc. There is a case in the Madras High Court, in A.V. Meiyappan [(1967) 20 STC 115] under which the High Court had said, the lease of films is not a completed sale and therefore not liable to sales-tax. This was the reason for making the amendment in the constitution to cover such temporary-transfers. Once that became the reason for making the amendment, how can the Centre after a period of 20 -30 years, turn around and say that temporary transfers are not covered? This is incorrect and we have given a detailed reply to what the Centre has said in the case.”

The Business Standard has reported the Government has stated in its affidavit that, “While complete transfer or rights to use any goods (where the original owner completely forgoes the title to a copyright) may be deemed to be considered as sale of goods, the temporary transfer of rights or just the transfer of rights to use or enjoy that copyright for specified purposes is a service provided by the person who is the holder of the copyright.” 

PVR has filed a rejoinder claiming the Government had incorrectly stated that it had power to tax temporary transfer of copyrights and such kind of transfers were not taxed by States.

On July 1, the Finance Ministry introduced tax on copyright services through a notification, which said all entities transferring for use the copyright in a film or sound recording would be liable to pay service tax at 10.3 percent. States are already levying value added tax on sale of copyright. PVR Pictures, Balaji Telefilms, Yash Raj Films, UTV Motion Pictures and Reliance Big Entertainment have challenged the tax, saying it was beyond the Centre’s power under the Constitution and would lead to dual taxation. 

Business Standard estimates that the tax department will lose at least Rs 100 crore in revenue in the first year if the court’s decision goes in favour of the producers.