Friday, July 9, 2010

Writ petition to challenge the imposition of Service tax on Copyright transfers

Background: The Finance Bill 2010 was enacted on 8th May 2010. Section 76 and 77 of the Finance Act, 2010 (14 of 2010) pertain to service tax issues. Eight new taxable services were introduced and certain changes in the scope of the nine existing taxable services (under section 65, with consequential changes in section 66 of the Finance Act, 1994) were made under section 76 of this Act. The provisions of section 76 (A) & (B) (except retrospective provisions relating to commercial coaching and training and renting of immovable property services) were to come into effect from a date to be notified, which is also known as appointed date. This date has been notified to be the 1st day of July 2010 (Refer Notification No.24/2010-Service Tax dated the 22nd June 2010). See notification here .

The finance ministry introduced the tax for the first time on July 1, 2010. As per the service tax notification, all entities transferring for use the copyright in any film or sound recordings would be liable to pay service tax at 10.3 percent.

PVR Pictures is the owner or co-owner of various copyrights of the films produced by it. It also acquires distribution rights to various films produced by other media houses. It uses copyrights like sale of music rights, sale of DTH rights and theatrical exploitation across cinemas. According to this notification all media companies has to pay service tax for transferring for use of copyrighted material also.

Writ petitions:

(A)First writ petition was filed by Tarun Gulati partner in Economic Laws Practice (ELP) on behalf of PVR Pictures, Balaji Telefilms, Yash Raj Films and UTV Motion Pictures in Delhi High Court against the government's decision on Wednesday. PVR Pictures petition’s alleged that copyrights are treated as goods and the transfer of copyrights are treated as sale of goods, which falls within the domain of taxation by states under Article 246, and not the Union.

The taxing entry for copyright services is contained in Section 65(105) of the Finance Act. The company said treating copyright as goods as well as a service is ultra vires (beyond the powers of) the Constitution of India and contravenes Articles 14, 19(1) (g), 265 and 300A of the Constitution.

Info: Article 19(1) (g)-Right to practice any profession; Article 265 –Taxes not to be imposed save by authority of law; Article 300A- Person not to be deprived of property save by authority of law.

(B) Second writ petition was filed by Naik Paranjpe & Co with senior counsel S Ganesh on behalf of Reliance Big Entertainment in Delhi High Court claiming that the new rule that makes transfers of copyrights in cinema films or sound recordings subject to a service tax of 10.3 percent is contrary to existing case law and India's constitution.

Info: Naik paranjape had helped in release the most awaited movie “kites” for alleged copyright infringement case in stipulated time. Read here in detail.

Aim of writ petitions: To challenge the imposition of service tax on copyright transfers and get relax from the imposed tax.

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