No intention to damage image of A.R. Rahman by accusing him of evading service tax, Commissioner of GST tells High Court

‘A demand for ₹6.79 crore towards service tax arrears and a penalty of another ₹6.79 crore was levied on the basis of evidence’

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.”