Taxation of intangible goods under Sales Tax Laws – Whether Radio operator can be covered under Sales Tax Laws ? Also explain different situations vis-à-vis tax application in relation to said activity.

General

Under Constitution, Sales Tax is covered by State list to the VIIth Schedule to the Constitution of India. As such, on local sales the State Governments are entitled to levy sales tax. Each State in India can have its own system of levy of sales tax. Prior to 1.4.2005 the States provided for levy of sales tax. From 1.4.2005, as per consensus between all states, the system of levy of sales tax has been changed to VAT. Though the expectation was that all states will have uniform provisions for levy of VAT, the said expectation has not materialized with the result that each state has drafted its own enactment. The effect is that system for levy of VAT varies from state to state. Here general issues about VAT are covered. However the readers will be required to refer to respective state provisions, for correct scope of levy of VAT. It is also required to be noted that relevant concepts like ‘goods’/nature of lease transaction etc., which have bearing on this topic, are under development and ambiguity still prevails. The information is prepared as per information available with us.

Under Constitution, Union List to VIIth Schedule provides for levy of tax in case of inter-state sales. This tax is levied under Central Sales Tax Act,1956. (CST Act,1956). The relevant aspects of CST are also covered at relevant places.

Few issues in respect of Radio operator can be summarized in question/answer form as under:

In relation to Radio, the activities will be procuring programme/contents and broadcasting the same. The procurement of programmes can be from various sources or self produced.

Q.1. Whether Radio Station can be covered under VAT Act?

Reply

Normally VAT provisions apply to ‘dealers’ i.e. those engaged in Sale/purchase of goods, as business. Radio station is normally rendering broadcasting services and hence it will not be generally covered under VAT laws, except any specific provision under respective State Act.

If Radio station is engaged, alongwith broadcasting, in any sale/purchase of goods it can be liable to tax. For example, there may be sale/purchase of radio programmes. Radio programmes will be in the nature of copy rights. Therefore, such sale/purchase will amount to sale/purchase of intangible goods i.e., copy rights. If so, then liability as ‘dealer’ can arise.

Q.2. When Radio station broadcasts the programmes like, songs/drama etc., whether VAT is attracted?

Reply

VAT can be levied on ‘sale’ of goods, which may be tangible or intangible goods. Sale postulates agreement between two parties i.e. seller and buyer. Subject matter of sale should be movable goods. Consideration is necessary to treat the transaction as sale. Also delivery of goods alongwith transfer of property (ownership) in the same to buyer is required, to complete the transaction as sale transaction (see Gannon Dunkerly & Co. (9 STC 353)(SC)) for discussion on above aspects). In some cases there can be lease transactions in the nature of deemed sale.

When Radio station broadcasts programmes the above aspects nowhere get fulfilled. They are also without any consideration. Therefore they will not attract any VAT.

Q.3. Whether any liability arises on advertisement revenue collected by Radio station.

Reply

Relaying advertisement for advertiser do not involve sale of any goods to such advertiser and therefore there is no question of any liability on such receipts.

Q.4. When Radio station acquires certain programmes, whether liability under VAT will be attracted?

Reply

The acquiring of programmes can be by various sources. Certain sources can be as under.

(i) Calling the actual programmer on Radio station who personally gives programme. No VAT liability will be attracted since no purchase of any goods. It may be purchasing of services but not goods.

(ii) Acquiring programmes from its owner, like, script of drama from writer. The original literature work amounts to copy right. Copy right is marketable item and hence considered as goods of intangible nature. Therefore, this will amount to purchase of goods. Depending upon provisions of respective state the liability on purchase can arise. For example, in certain states for effecting purchases from unregistered dealers purchase tax is attracted. This will be required to be seen qua each state. In Maharashtra, under MVAT Act,2002, no purchase tax is levied and hence there cannot be any question of attracting purchase tax. However, as stated above, this position will apply, if at all the Radio station is covered under the scope of ‘dealer’ under any state provision.
(iii) Songs etc. are played on radio. Normally, records available in market are played. Song is also a kind of copy right. For playing song the permission of owner/concerned authority will be required to be taken. This will amount to acquiring copy rights of song. This acquiring will be generally on licence basis and hence will not amount to purchase. If under any State Act it is considered to be purchase, like purchase under ‘transfer of right to use’ (lease) than the question of levy of purchases tax can arise, as discussed above.

(iv) Radio station can also produce its own programmes by engaging artists/professionals. Such prepared programme will be its own property and no issue of VAT will arise.

Q.5. If Radio operator gives its programmes to others, against consideration, whether VAT liability can arise ?

Reply

If any self produced programme or acquired programme is given to others, against consideration, it may involve sale of copyright, as programmes are intangible goods in the form of copy right. If they are sold as normal sale, sales tax liability can arise. If programmes are allowed to be used without transfer of ownership, the same may amount to leasing of copy rights, subject to nature of agreement. Under Sales Tax, lease transactions are also covered as deemed sale transactions. Therefore, in respect of above transactions, liability needs to be checked.

Q.6. Whether liability under CST Act is attracted?

Reply

To attract liability under CST Act nature of transaction shall be inter-state sale. The nature of inter-state sale is to be ascertained in light of provisions of section 3(a)/(b) of CST Act. Normally if there is movement of goods from one state to other, due to sale, it amounts to inter-state sale. Therefore, in above case, if due to sale/ deemed sale, there is movement of such goods from one state to other, it will amount to inter-state sale, liable under CST Act,1956.

Q.7. What are the circumstances where sales tax liability can arise for content provider, like, provider of drama script or artist etc.?

Reply

As stated above, their can be different situations of acquiring programmes by the Radio station, which will correspondingly amount to disposal by the concerned provider. If artist or other professional provides its personal services then there is no liability under Sales Tax. For example, an artist singing song on radio station, no sale is involved and no sales tax liability. Similarly, if Radio station is producing drama by itself, by engaging different professionals, it will again be providing personal services by such professional service providers, not involving any sales tax issue for such professionals.

However when any author provides drama script to Radio station, either on permanent basis or temporary basis, against consideration, it will amount to sale of copyright etc.. It may be normal sale or lease sale. The situation of such author is required to be seen whether he is ‘dealer’. If the author is considered to be dealer then he will be liable to discharge tax liability, otherwise not. Whether such author is dealer or not depends on various factors like his intention, frequency of such supply and nature of agreement with Radio station. Similar position can apply for others also who supply their prepared programmes to Radio station. For example, a provider has produced song album which he provides to Radio station. The liability on such supply will be required to be seen as to whether such Album supplier is dealer. If yes, then the nature of supply will be required to be seen as to whether it is copyright, so as to attract liability as sale/purchase of copyright. It is also possible that radio station may get some programmes made by others and such providers may supply the same to Radio station as per requirements of Radio station. In such case the script/content of programme may be given by Radio station to such provider. The provider will produce programme by engaging artists/professionals and supply the same to Radio station on floppy/CD/Audio cassette etc.. In this case the copyright in the programme produced will be of Radio station and no question of sale/purchase of copyright will arise. However liability under Works Contract can arise if such provider uses his materials which get transferred to the Radio Station. Though the above issue of liability as works contract can be debatable, keeping into account judicial pronouncements it may be held liable to works contract. For example, in case of Oberoi Films S.A.469 & 470 of 2004 dt.5.1.2008, M.S.T. Tribunal was concerned with the issue of production of Ad film for client and supplying the same to client on “U-Mutic Cassettee”. Tribunal held that to the extent of such cassette there is liability to tax as works contract. Thus such activities, though relating to intellectual work are held liable to works contract and this possibility is required to be examined in light of facts of the case.

As the scope of Sales Tax is increasing due to the fact that more and more intangible goods are covered under Sales Tax, there may be several other issues relating to above activity. The same are required to be seen in light of facts of the case and the legal position being developed by various judgments.