Production Work For Broadcaster Liable To Service Tax Even With Copyright Transfer: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 2 April, held that service tax is leviable on the production of a television serial on behalf of a broadcaster under “programme producer's service”, even where the agreement provides for perpetual assignment of copyright.

A Bench comprising Technical Member M. Ajit Kumar and Judicial Member Ajayan T.V. dismissed the appeal filed by Sathya Jyothi Films and upheld the service tax demand with interest and penalties. The Tribunal observed:

“While the preamble of the said agreement, no doubt, contains terms assigning the exclusive copyrights and all ownership rights of all the episodes for a period perpetual. However, equally, the other recitals in the preamble as well as the terms that have been agreed upon, are also relevant for consideration and cannot be ignored. The agreement is seen to provide for both, the assigning of exclusive copyrights in perpetuity and also provides for the appellant to undertake the production work from the 1st episode onwards. It provides that the production work is to be undertaken as directed by M/s. Gemini TV.”

Sathya Jyothi Films had entered into an agreement with Gemini TV for the Tamil serial "Anandam", under which it assigned exclusive copyright and ownership rights of the dubbed Telugu version to the broadcaster in perpetuity. The agreement also required the appellant to undertake production work as directed by Gemini TV, for which it received per-episode consideration.

The Department initiated proceedings alleging that Sathya Jyothi Films had rendered taxable services under “programme producer's service” and had failed to discharge service tax liability for 2005–06 to 2007–08. It was further alleged that the appellant suppressed material facts by not disclosing such income in ST-3 returns while filing nil returns.

The appellant contended that the transaction was purely an assignment of copyright in perpetuity, amounting to sale, and therefore not liable to service tax. It argued that permanent transfer of copyright falls outside the scope of taxable services and that the extended period of limitation could not be invoked.

The Department argued that the agreement clearly showed that the appellant was producing the serial on behalf of Gemini TV and receiving consideration linked to production, thereby attracting service tax under “programme producer's service”. It further contended that the appellant had suppressed facts with intent to evade tax.

After examining the agreement in its entirety, the Tribunal noted that the per-episode consideration payable after telecast was indicative of consideration for services rendered and that the production work was carried out under the direction of Gemini TV. It held:

“.......the consideration stipulated therein, on per episode rate to be paid for every five episodes after its telecast, in the succeeding week, is nothing but consideration towards the service of the production work undertaken by the appellant.”

The Bench observed that the agreement involved two separate components: the assignment of copyright and the production work. These aspects are clearly distinct and independently assessable. Consequently, the Revenue was entitled to levy service tax on the production work carried out by Sathya Jyothi Films for Gemini TV under Section 65(105)(zzu), regardless of the perpetual copyright assignment. It reiterated:

“The agreement cannot be viewed as one that pertains solely to assignment of copyrights so as to denude the Revenue from levying service tax in terms of the Finance Act, 1994 on the service rendered by the appellant to M/s. Gemini T.V., namely, the activity of production work that has been undertaken by the appellant, more so, when the terms of the agreement, including the per episode consideration specified is indicative of the said consideration being for the production work.”

On limitation, the Tribunal upheld the extended period, noting that the appellant had begun paying service tax only from 01.04.2008 without any change in the agreement or business model, indicating suppression of facts for the earlier period.

Accordingly, the CESTAT upheld the demand of service tax along with interest and penalties and dismissed the appeal.

For Appellant: Radhika Chandrasekhar, Advocate

For Respondent: N. Satyanarayana, Authorised Representative