The Mumbai bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that intellectual property, specifically copyrights, was intangible and does not fall under the definition of services under section 65B (44).
The appellant was a Non-Profit making Organization and got itself incorporated as a limited Company under the Companies Act, 1956. Owners of copy rights in musical works are its members who took member-ship for the purpose of assignment of their copy rights in respect of musical and literary works to the Appellant in terms of Section 18 of the Copyright Act, 1957 and pursuant to such assignment Appellant, as owner of copyright under assignment, licenses the same to various organizations for use in radio stations, online music streaming websites, restaurants, malls, hospitals, airlines etc. as users and appellant earns license fees/ royalties from them.
Being a Non-Profit Organization, appellant deducts its administrative expenditure from those license fees/royalties and pays the rest of the amount as royalties to the members in consideration for assignment of their copyright to the Appellant.
Mr. A.R. Krishnan, Chartered Accountant representing the appellant submitted that in view of categorical findings of this Tribunal given on 16.03.2017 dropping the demand made through the primary Show-cause notice dated 10.10.2008, subsequent demand made through Show-cause in the form of statement of demand would not survive even for the period post negative list as the alleged nature of service rendered by the appellant remained unchanged.
He further submitted that appellant had not provided any service to its members but provided services of licencing the copyrights in musical works to its members who had only paid subscription fee of meager amount and licensing of copyright in musical work being exempted from the purview of ‘Intellectual Property Right Services’ both for the period from 1.04.2010 to 30.06.2012 and post negative list period of dispute from 01.07.2012 to 31.02.2014 vide Entry No. 15 of the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012, no duty was payable and what was actually being collected from the members were only monthly member-ship subscription that was not at all a service and if for the sake of argument it is considered as a service, the entire collection of membership fees for each Financial Year under dispute is below Rs.3,00,000/- and, therefore, could not be taxed since the same was less than threshold of Rs.10,00,000/- turnover prescribed for obtaining even registration under Service Tax.
Per Contra,Mr Suvir Misra,representing the respondent-Department, argued in favour of the reasoning and rationality of the order passed by the Commissioner and placed his reliance on the decision of Banglore Tribunal in the case of ICICI Econet Internet Technology Fund Vs. Commissioner of Central Tax to justify that principle of mutuality would not be applicable in case of a Trust representing the fund since they are engaged in Commercial activities and therefore, he sought no interference by the Tribunal in the order passed by the Commissioner.
The bench noticed that the nature of service provided by the appellant was stated to be administration of copyrights owned by its members and it is in the nature of facilities or advantages extended to its members. However, going by the factual background, it is noticed that appellant is a company and not a Society registered under Society Registration Act but it collects monthly subscription fee from its members.
The two member bench of the tribunal comprising Dr. Suvendu Kumar Pati (Judicial member) and Anil G. Shakkarwar (Technical member) observed that the Clause 29A of Article 366 of Constitution of India defines all services associated with sale of goods or lease of the kind as deemed sale and as because Intellectual Property, which in the present case is copyright and other related rights in the nature of performance, play etc. that is not in tangible form, the same may not be included under the definition of services under Section 65B (44 read with Section 66E) but the very fact that Section 65 (55b) that defines “Intellectual Property Services” expressly excludes copyright from the category of Intellectual Property services and there is also no demand against such license fee/ royalty collected by the appellant from the customers/ users, the order of the Commissioner is unsustainable in both law and facts.
Further demand being confirmed against administrative expenditure that was deducted from the membership fee and royalty/ licence fee by a non-profit organization namely assesse, consideration should also be treated as ‘Nil’ for the purpose of taxation. Accordingly, the appeal was allowed and the order passed by the Commissioner of Service.
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