Madras High Court rejects plea by AR Rahman against service tax demand on copyright transfer; asks him to file appeal before CGST authority

The Madras High Court on Thursday dismissed a batch of petitions filed by music composer AR Rahman and others challenging notices issued by the Goods and Service Tax (GST) department demanding service tax for the permanent transfer of copyrights of their musical work made to film producers [M/s Amrita International v Principal Commissioner of CGST & Central Excise]..Justice Anita Sumanth dismissed pleas filed by music composers Rahman, CR Santhosh Narayanan, and GV Prakash Kumar. Justice Sumanth, however, granted liberty to Rahman and another petitioner to file statutory appeals before Central Goods and Service Tax (CGST) authorities within four weeks challenging such demand of service tax with penalty. The Court directed the appellate authorities under CGST Act to entertain the appeals "without reference to limitation period." In their pleas, the petitioners had challenged proceedings initiated against them in October 2019, by the Principal Commissioner of CGST and Central Excise. The proceedings were based on a show cause notice issued to them in October 2018 by the Additional Director General of GST Intelligence, Chennai Zonal Unit. The said show cause notice proposed levy of service tax on transfer of copyright in musical work for the period between April, 2013 and June, 2017. The notice claimed that Rahman and the other petitioners were not the owners of their respective composed music works, and hence, no copyright as contemplated under Section 13(1)(a) of the Copyright Act, 1957, was vested in them. The proceedings were initiated against Rahman and the others on the charge that they had suppressed several receipts between 2013 and 2017 to avoid remitting service tax in full..Rahman, however, argued that the proceedings were illegal for they had been initiated by the Central GST authority even though the show cause notice had been issued by the Chennai Zone GST authority. He also said that he was the "sole and absolute owner of the copyright that subsists in the musical works composed by him." He said that being the holder of such copyright, he assigned them to the film producer under agreements that he executes with them, in terms of which the producer could exploit that copyright. Rahman claimed that the Commissioner of GST and Central Excise had initiated proceedings against him and demanded ₹13.58 crore on the erroneous presumption that film producers should be considered as owners of copyright of his musical work created on the basis of contractual agreements between them. Rahman cited Section 13(1)(a) of the Copyright Act, 1957 and said that a composer is the sole owner of copyright on songs as well as background score composed for the movies produced by others. He said that permanent transfer of copyright could not be termed as a service liable for tax..While Justice Sumanth said that Kumar had approached the court prematurely challenging only the show cause notice issued to him, he must first respond to such show cause notice. Regarding the cases of Rahman and Narayanan, the Court said that while there was no conflict of jurisdiction of the Central and Zonal GST authorities, the issued raised on merits on copyright and ownership of one's music and the demand for service tax etc. required a study of voluminous records including the agreements which the three music composers had signed with producers of various movies between 2013 and 2017. "It is best that such issues be decided by the authorities who can call for relevant information, including the agreements, from the petitioners for their appreciation. Interpretation of contractual clauses is not a matter that should concern this court," the High Court said. The Court also said that there was no dispute of jurisdiction in the present case as Indirect Tax departments had been following for years, the practice of issuance of show cause notices by one authority with adjudication by another. "While there can be no dispute with the proposition that what is prescribed has to be done as per the prescription, and in no other way, the duel procedure followed hitherto, is explained by the respondents, as a measure, and in the interests of, administrative feasibility. This is a legitimate explanation and the aforesaid procedure has withstood the test of time," the High Court said. Advocate Radhika Chandrasekhar appeared for AR Rahman and CR Santosh Narayanan.Advocate Joseph Prabakar appeared for GV Prakash Kumar. Additional Solicitor General R Sankara Narayanan appeared for the Commissioner of CGST and Central Excise. Senior Central Government Standing Counsel V Sundareswaran appeared for the Joint Director, Office of the DGGI, Chennai Zonal Unit..[Read Judgment]