The Commissioner of Goods and Services Tax (GST) and Central Excise has denied the charge of attempting to damage the image of renowned composer A.R. Rahman by accusing him of evading payment of service tax through artificial segregation of a bouquet of services rendered by him while composing and recording songs as well as background score for feature films.
In a counter-affidavit filed before the Madras High Court, the Commissioner asserted that he had demanded ₹6.79 crore towards arrears of service tax, excluding interest, and also imposed a penalty of another ₹6.79 crore after being fully convinced that the entire bouquet of services, and not just a part of it, offered by the musician to the film producers was liable to be taxed.
When a writ petition filed by Mr. Rahman in 2020, challenging the demand notice issued in October 2019, was listed before Justice Anita Sumanth on Tuesday, senior Central government standing counsel Rajnish Pathiyil said the proceedings against the composer were initiated based on intelligence gathered by the Directorate-General of GST Intelligence.
A perusal of the agreements entered between him and film producers, and also their statements recorded during the course of the inquiry, proved that the musician had not merely shared musical notations with the producers. Instead, he had composed the music and recorded it by engaging the services of lyricists, singers, instrumentalists and technicians.
“Therefore, all these activities severally or collectively constitute a service as defined under Section 65B (44) read with Section 65B (51) of the Finance Act of 1994 and are liable for payment of service tax,” counsel said and pointed out that the musician had also retained certain rights with him and not transferred absolute copyright to his work to the film producers.
The rights retained by the writ petitioner included the right for public performance of his work and also to receive publishing royalties from across the world, except in India and Pakistan. “Any legally enforceable right retained by the petitioner disqualifies such assignment as absolute transfer... It is not an absolute transfer but a mere temporary transfer,” he argued.
Stating that the musician had created an artificial segregation of his work and paid service tax only for 10% to 15% of the total consideration received by him from the producers by contending that only sound recording services were liable to tax, Mr. Pathiyil said, “The petitioner had segregated the taxable and non-taxable parts without any valid ground.”
The counter-affidavit filed on behalf of the Commissioner went ahead to state, “The petitioner paid service tax only for a meagre portion of overall considerations received by him. He deliberately withheld all the related information from the knowledge of the department and has clearly contravened the Finance Act with the intention to evade payment of service tax.”
The Commissioner also claimed that there was nothing wrong in his having adjudicated the issue, though the show cause notice was issued by an Additional Director-General of GST Intelligence. “The practice of issuance of show cause notice by one authority and adjudication by another authority is for administrative feasibility,” he said.
Further, the official also contended that the musician ought to have availed himself of an effective alternative remedy of preferring a statutory appeal before the Commissioner (Appeals) and not filed a writ petition. He urged the court to vacate an interim stay of the proceedings granted in February 2020 and dismiss the writ petition.
After hearing counsel for the petitioner as well as the respondents, the judge said she shall peruse the case records as well as the judgments related to the issue and then list the matter for orders.
