Permanent Assignment of Film Copyrights and In-Film Branding Agreements Executed Before Oct 1, 2014 Are Not Taxable Under Service Tax: CESTAT [Read Order]
CESTAT held that permanent transfers of film copyrights and in-film branding agreements executed before October 1, 2014, are not liable to service tax
CESTAT, Service Tax, Film Branding Agreements
CESTAT, Service Tax, Film Branding Agreements
The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the permanent transfer of film copyrights and in-film branding agreements executed before October 1, 2014, are not taxable under service tax.
Rockline Entertainments Pvt. Ltd., a Bengaluru-based film production company, was issued a show cause notice for the period from April 2011 to September 2015, alleging non-payment of service tax on income from in-film branding, assignment of film rights, and related activities.
The adjudicating authority confirmed a part of the demand but dropped the tax on film exhibition and permanent transfer of rights. Both the department and the appellant filed appeals against different parts of the order.
The appellant’s counsel argued that the in-film branding agreement with M/s Lalithaa Jewellery for the movie Lingaa was signed on July 5, 2014, when the “sale of space or time for advertisements” in films was still part of the negative list under Section 66D(g) of the Finance Act, 1994.
The counsel explained that the agreement predated the 2014 amendment which removed such services from the negative list. It was further argued that the Kerala High Court in Manjilas Food Tech (P) Ltd. v. Union of India had struck down the amendment expanding service tax on advertisements as unconstitutional.
Based on this, the appellant claimed that in-film branding executed before October 1, 2014, was not taxable.
The appellant’s counsel also argued that the assignment of non-theatrical rights and satellite rights for films such as Lingaa and Power amounted to a permanent transfer of copyrights under Section 26 of the Copyright Act, 1957, which provides for copyright protection for sixty years from publication.
They pointed out that such permanent transfers are not taxable as services under the Finance Act, 1994, and referred to CBEC Circular No. 80/10/2004-ST, which clarified that only temporary transfers of intellectual property rights are liable to service tax.
The department’s representative argued that the copyright transfers were temporary in nature and that the in-film branding activity amounted to advertisement services taxable under Section 65(105)(zzzm) of the Finance Act, 1994.
The two-member bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) examined the agreements and observed that the copyright assignments were made for the lifetime of the copyright and were irrevocable. The tribunal observed that such assignments amounted to permanent transfers and could not be treated as services liable to tax.
The tribunal further observed that the in-film branding agreement was executed before October 1, 2014, when the sale of space or time for advertisements in cinematographic films was still covered under the negative list. Referring to the Kerala High Court decision in Manjilas Food Tech (P) Ltd., the bench explained that the 2014 amendment expanding the scope of taxable advertisements was unconstitutional and beyond the powers of Parliament.
The tribunal held that both the permanent transfer of film copyrights and in-film branding agreements executed before October 1, 2014, fall outside the ambit of service tax. The appellant’s appeal was partly allowed, and the department’s appeal was dismissed.
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