Right to use visual images in mobile games classifiable under IPR or copyright services?

PJ/CASE LAW/2015-16/2723

Case:- INDIAGAMES LTD. VERSUSCOMMISSIONER OF SERVICE TAX, MUMBAI

Citation:- 2015 (37) S.T.R. 299 (Tri. - Mumbai)

Brief facts:- The appeal and stay petition were directed against Order-in-Original No. 70/S.T.-II/RS/2013, dated 20-11-2013 passed by Commissioner of Service Tax-II, Mumbai. Vide the impugned order, the adjudicating authority had confirmed a Service Tax demand of Rs. 31,96,755/- along with interest thereon against M/s. Indiagames Ltd. by classifying the services received by them under “Intellectual Property Rights Service” (IPRs) as defined under Section 65(105)(zzr) read with Section 65(55a) and Section 65(55b) of the Finance Act, 1994. Aggrieved of the same, the appellants filed appeal.

Appellant’s contention:- The learned Counsel for the appellant submitted that the appellant, M/s. Indiagames Ltd., entered into a licence agreement with the Universal Studio Licensing LLLP, California, USA. As per the said agreement, the appellants 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. The appellants used the said images in mobile games. For the right to use the said universal property, the appellant paid royalty to the service provider. The learned Counsel submitted that the property which were visual images come under the category of “Copyright” as defined in Copyrights Act and IPR services, specifically excluded copyrights from its purview. Therefore, the question of payment of any Service Tax on the copyrights received from abroad did not arise. The learned Counsel further submitted that the appellant had 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 1-6-2007, which included 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 had not been disputed by the department. The learned Counsel also submitted that demands were time barred inasmuch as the show cause notice had been issued only on 20-10-2009 demanding the service for the period 10-9-2004 to 30-9-2007. He also submitted that neither in the show cause notice nor in the impugned order, there any proposal or findings as to under what category of IPRs the property received by the appellant fell. Therefore, he submitted that the impugned order was not sustainable in law and the same be set aside by allowing the appeal.

Respondent’s contention:- The learned Additional Commissioner (AR) appearing for the Revenue fairly submitted that neither in notice nor in the impugned order the category of IPR under which the property fell had been specified. Nevertheless, he reiterated the findings of the adjudicating authority and submitted that the property received by the appellant in the images of “Bruce Lee” would fall under IPR services and hence, the appellant was liable to tax on reverse charge basis with effect from 18-4-2006 onwards.

Reasoning of judgment:- They carefully considered the submissions made by both the sides. As the issue lied in a narrow compass, they were of the view that the appeal itself could be disposed of at this stage. Therefore, after waiving the requirement of pre-deposit and with the consent of both the sides, they took the appeal itself for consideration and disposal. From the agreement entered into by the appellant with Universal Studio, it was seen that the appellant had 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 had 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 Copy right Act, 1957 as artistic work as defined in Section 14(c) of the Copyright Act. Even if it was treated as a computer programme, it would still fall under copyright as defined in Section 14(b). Since, copyright was specifically excluded from the IPR service during the relevant time, the question of levy of Service Tax on a copyright work under IPR service did not stand the scrutiny of law. Therefore, the impugned orders were clearly unsustainable. Accordingly, the order was set aside the same and allowed the appeal with consequential relief, if any, in accordance with law. Stay petition also stood disposed of.

Decision:- Appeal allowed.

Comment:- The gist of the case is that the activity of allowing use of visual images for the purpose of mobile games is covered under the copyrights services. However, as the service tax demand was raised under IPR services and IPR service was specifically excluded from the copyright service during the relevant time, it was concluded that no service tax is leviable on the said transaction. The appeal was allowed due to wrong classification proposed in the show cause notice.

Prepared by:- Prayushi Jain

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PJ/CASE LAW/2015-16/2723

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