By TIOL News Service

MUMBAI, SEPT 24, 2014: THE CST, Mumbai confirmed a service tax demand of Rs.31,96,755/- against the appellant by classifying the services received by them under "Intellectual Property Rights Service".

Before the CESTAT, the appellant submitted that they entered into a licence agreement with the Universal Studio Licensing LLLP, California, USA and as per the said agreement they were permitted to use the Universal property in the name and likeness of the legendary martial artist known as "Bruce Lee" as embodied in the visual images supplied to Licensee by Universal; that they used the said images in mobile games and for the right to use the said universal property, the appellant paid royalty to the service provider. It is further submitted that the property which are visual images come under the category of "Copyright" as defined in Copyrights Act and IPR services specifically excludes copyrights from its purview; therefore, the question of payment of any service tax on the copyrights received from abroad does not arise. So also, neither in the show-cause notice nor in the impugned order there is any proposal or findings as to under what category of IPRs the property received by the appellant falls.

It is also informed that the appellant has been discharging service tax on the royalty payment under the category of "development and supply of mobile content service" as defined under Section 65 (36c) with effect from 01/06/2007 which includes development and supply of mobile value added services, music, movie clips, screen savers wallpapers, mobile games, data whether or not aggregated, information, news and animation films and payment of service tax under the said category has not been disputed by the department.

The issue of the demand being hit by limitation is also pleaded inasmuch as the SCN has been issued only on 20/10/2009 demanding the service tax for the period 10/09/2004 to 30/09/2007.

The AR while admitting that neither in notice nor in the impugned order the category of IPR under which the ‘property' falls has been specified reiterated the findings of the adjudicating authority and submitted that the property received by the appellant viz. the images of 'Bruce Lee' would fall under IPR services and hence, the appellant is liable to tax on reverse charge basis with effect from 18/04/2006 onwards.

Noting that the issue lies in a narrow compass, the Bench after waiving the pre-deposit took up the appeal itself for consideration.

The Bench observed -

++ From the agreement entered into by the appellant with Universal Studio, it is seen that the appellant has been permitted to use property in the name and likeness of the legendary martial artist "Bruce Lee" embodied in visual images supplied to them for which the appellant has paid consideration to the foreign service provider by way of royalty.

++ The property embodied in visual images would come squarely within the definition of copyrights as defined in Copyright Act, 1957 as artistic work as defined in Section 14 (c) of the Copyright Act. Even if it is treated as a computer programme, it would still fall under copyright as defined in Section 14 (b).

++ Since copyright is specifically excluded from the IPR service during the relevant time, the question of levy of service tax on a copyright work under IPR service does not stand the scrutiny of law.

Holding that the order is not sustainable, the same was set aside and the appeal was allowed with consequential relief.

(See 2014-TIOL-1828-CESTAT-MUM)