NEW DELHI: The Delhi High Court will hear on 2 August a petition by some media companies
challenging the central government�s decision to levy service tax on copyright services.

Notice was issued to the Union of India and the Union Finance Ministry by a division bench headed by Chief Justice Deepak Misra on a petition filed by PVR Pictures, Balaji Telefilms, Yash Raj Films and UTV Motion Pictures.

Notice was also issued yesterday in a similar case filed in Bombay High Court by Balaji Telefilms, Yash Raj Films and UTV Motion Pictures. However, no date was fixed though it was said the matter would come up for early hearing.

The petitioners have said that by levying service tax on copyright services, the central government was going beyond its powers entrusted under the Constitution.

The Finance Ministry introduced the tax for the first time on 1 July 2010. The petitioners alleged that copyrights are treated as goods and the transfer of copyrights are treated as sale of goods, which falls within the domain of taxation by states under Article 246, and thus the Union cannot levy service tax. The taxing entry for copyright services is contained in Section 65(105) of the Finance Act.

The petition said treating copyright as goods as well as a service is ultra vires the Constitution of India and contravenes Articles 14, 19(1)(g), 265 and 300A of the Constitution.

The Finance Ministry notification had said that all entities transferring for use the copyright in any film or sound recordings would be liable to pay service tax at 10.3 per cent, as well as sales tax on the copyright.

PVR Pictures in its petition has said it is the owner or co-owner of various copyrights of the films produced by it. It also acquires distribution rights to various films produced by other media houses. It uses copyrights like sale of music rights, sale of DTH rights and theatrical exploitation across cinemas.

The petitioner said this involves a transaction of sale of goods and such a transaction of distribution or exhibition involving transfer of the right to use copyright attracts value-added tax (VAT). The government notification had said transfer or allowing use of right should be subjected to service tax.

"Copyrights are intangible property and are liable to VAT. Charging service tax on the transfer of copyrights is a clear transgression of the powers of the states to levy tax on the sale and purchase of goods. The industry will not be able to survive if this duality of taxation is not done away with," according to petitioner's lawyer Tarun Gulati of Economic Law Practice (ELP).