Issue- Challenge in these writ petitions is the vires of the provision Section 65(105)(zzzzt) of the Finance Act bringing within the ambit of ‘service tax’ certain forms of income generated from “temporary transfer or permitting the use or enjoyment” of, any copyright as defined in the Copyright Act, 1957(14 of 1957) except the rights covered under Section 13(1)(a) of the said Act.
The following points arise for consideration in these Writ Petitions :-
1. Whether the taxable event provided under Section 65(105)(zzzzt) of the Finance Act, 1994 is covered by Article 366 (29A)(d), which is a “deemed sale of goods”?
2. Whether the Petitioners are right in contending that the levy of service tax on “temporary transfer or permitting the use or enjoyment of copyright” provided under Section 65(105)(zzzzt) of the Finance Act, 1994 is covered under Entry 54 of List II and whether it amounts to transgression by Parliament into the exclusive domain of the State Legislature?
3. Whether the Petitioners are right in contending that the copyright is goods and transfer of copyright of Cinematography films is only delivery of goods for consideration and is absolute transfer and no service element is involved?
4. Even assuming that there is an element of service involved in the nature of transaction done by the Petitioners, should the dominant intention of the transaction being transfer of goods has to be only taken into consideration?
5. Whether the Petitioners are right in contending that Parliament has no authority to dissect a composite transaction as in the case of the Petitioners and levy service tax?
6. Whether Section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright is ultra vires the Constitution?
Held- Variant modes of business transactions between the producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not sale of goods to fall under Entry 54 List II or Entry 92A List I. By resorting to Entry 97 of List I Residuary Entry to levy service tax, the Parliament is within its legislative competence and Section 65(105)(zzzzt) is not ultra vires the Constitution.
From the production of the cinematograph film till it is exhibited, there are host of commercial activities. Service tax is the value added tax, which applies to the business transactions for consideration involving commercial activities. Over all, there is a huge rise in business of film industry and huge money is involved.
The temporary transactions of copyrights or the permission to use or enjoyment of the copyright cannot be brought either under Entry 54 of List II or Entry 92A of List I. Applying the ratio of the decisions of the Supreme Court, we hold that the Parliament is well within its legislative competence in levying service tax resorting to Entry 97 of List I.