31. Issue: Can contract with T.V. Channel for telecast of films and programmes produced or acquired by assessee for minimum guaranteed fee and share of advertisement revenue be treated as one for transfer of right to use goods?

Held : Yes

Petitioners were engaged in the business of production of movies, acquisition of satellite rights of feature films produced by the other film producers. They were also engaged in production of tele serials and film based programmes. The films produced/acquired or programmes produced were exploited by them to earn income by telecasting. The programmes are telecast along with advertisement material of the sponsors and advertisers. During the relevant time, petitioner did not have satellite telecast facility. Petitioner entered into Memorandum of Understanding with Eenadu Television (ETV) at Hyderabad for telecasting the films or programmes produced or acquired by it. ETV had infrastructure and satellite time. Accordingly, both petitioner and ETV were desirous of exploiting the programmes produced/acquired by the petitioner for mutual commercial benefit by telecasting and earn the advertisement revenue. For this arrangement ETV agreed to pay certain minimum guaranteed fee per episode per telecast or re-telecast and share of advertisement revenue over and above such minimum guaranteed fee.

Such receipts in the hands of petitioner were taxed by the revenue as petitioner and ETV were involved in transfer of right to use goods. Said order of revenue was upheld by the Full Bench the Tribunal. Petitioner filed revisions before the High Court.

The moot question before the High Court was ‘Whether within Article 366(29A)(d) of the Constitution of India read with Explanation IV to section 2(n) of the Andhra Pradesh GST Act, were petitioner and ETV involved in transfer of right to use of goods?

Petitioner contended that the programmes were entrusted to ETV only for limited purpose of telecasting and there was no transfer of right to use, to the exclusion of the petitioner. It was further contended that the right of exploitation of programmes to ETV had not in fact been transferred and the MOU was for joint enterprise in which the petitioner had to contribute the software and ETV had to contribute their right over transporter for uplifting facility and therefore it would not attract any tax.

Revenue contended that as per MOU, the transfer of right to use goods was inherent in its terms and transfer was complete and irrevocable and, therefore, it would attract provisions of law in regards to right to use and the order of Tribunal upholding the order of C.T.O. is correct.

The Court observed that as per the terms of MOU petitioner should produce and provide quality programme software to ETV for telecast on ETV’s TV Channel which would mean that after the petitioner produced the programmes it had to transfer them to ETV for being telecast. For this ETV guaranteed minimum amount to be paid to petitioner even if ETV after telecasting programmes did not receive money. Further in addition to minimum guaranteed fee, a share of advertisement revenue had to be paid to petitioner by ETV. Court concurred with the observation of Tribunal that ETV which copies the programmes from the Master Cassette for the purpose of telecast hold the exploitation rights of the software programmes by means of telecasting whereas the petitioner holds only the title to them, that the software programmes copied were not given to any other telecasting parties and that the transfer of right to use goods occurred within the State of Andhra Pradesh, as the copying of the programmes amounts to delivery of goods. In view of the above, it was held that the contract was for transfer of right to use the goods from petitioner to ETV, under Andhra Pradesh Act.

Following important decisions amongst others were referred by the court.

1. Bengal Immunity Co. Ltd. vs. State of Bihar (6 STC 446)(SC);

2. BSNL vs. Union of India (145 STC 91)(SC);

3. Builders Association of India (73 STC 370)(SC); and

4. 20th Century Finance Corporation Ltd. vs. State of Maharashtra (119 STC 182)(SC).

[Ushakiran Movies vs. State of Andhra Pradesh (148 STC 453)(AP)]

32. Issue: Whether process of laminating on G-I, CRCA and aluminium sheets, amounts to manufacture?

Held : No

The Tribunal following the decision in case of Shivdatta and Sons (84 STC 497) held that various processes of laminating G-I, CRCA and aluminium sheets does not amount to manufacture. Against the said decision of Tribunal, revenue filed reference before the High Court. It was a contention of the revenue that said activity as mentioned above amounts to manufacture. It was the contention of the revenue that the definition of ‘manufacture’ as available under the BST Act, 1959 is a wide definition and particularly used the term such "as altering, ornamenting, finishing or otherwise processing", appearing in that definition and, therefore, the said activity of the assessee amounts to manufacture. Whereas assessee (respondent) relying on the decision of Shivdatta and Sons (84 STC 497) contended that in the case cited where manufacturer was removing electrolyte before transporting batteries to the dealer. Dealer was immersing plates in electrolyte and charging the batteries for substantial period and thereafter, the recharged batteries were sold and Apex Court has taken a view that said activity did not amount to manufacture. Therefore, in view of this, assessee treated his activity as not amounting to manufacture.

Court observed that the facts of the present case are similar to that from the case of Shivdatta before the Apex Court and the view taken by the Apex Court is followed by the Tribunal and, therefore, it was held that there is no case in making reference and accordingly reference filed by revenue was rejected.

[Commissioner of Sales Tax vs. Virema Laminates Pvt. Ltd. (148 STC 558)(BHC)]

33. Issue: Is continental shelf part of local area?

Held : No

Petitioner is registered under Orissa Entry Tax Act. The petitioner has been granted permission by Central Government to drill and explore oil and natural gas on the offshore area which includes territorial waters, continental shelf and exclusive economic zone. The place where goods (materials) were despatched was 40 nautical miles away from the coast of Orissa and falls within the continental shelf. The goods sent at the rig are not used and/or consumed and/or sold within the local area as defined under OET Act. The petitioner deposits entry tax in respect of the goods which are brought within the State of Orissa and used or consumed or utilised within the local area.

His claim for deduction on value of the goods (materials) brought to state for exploration work has been rejected and entry tax has been levied by the assessing authority.

Said orders were challenged before High Court by way of writ by petitioner.

Assessing authority levied tax on the ground that since the sovereign rights of India extends up to 200 nautical miles, the territorial jurisdiction of State of Orissa also extends up to 200 nautical miles and the said particular portion of sea is the territory of Orissa within Orissa and no other States or Union Territory can exercise its authority.

Petitioner challenges said orders on the ground by referring the Maritime Zones Act that the Union of India has been vested with the power and authority to extend the application of certain enactments in force in India to the continental shelf and exclusive economic zone by way of notification. In absence of such notification the claim of revenue that the location of the rig is part of local area is clearly illegal, invalid and not sustainable in law.

While dealing with the writ court referred to the definition of ‘local area’ under OET Act which does not refer to rigs situated at highseas. Further Court observed that it is uncontroverted fact that rig is situated in continental shelf and in absence of a notification issued by the Central Government in terms of Maritime Zone Act, it is held that goods which are brought and used at rigs are not said to be consumed used or sale within ‘local area’ as defined under OET Act and accordingly order passed by the assessing authority were quashed and writ petition was allowed.

[Reliance Industries Ltd. vs. The Assessing Authority (148 STC 324) (Orissa High Court)]

34. Issue: ‘Handling charge’ charged separately whether part of ‘sale price’ under CST Act?

Held : No

The assessee dealer was engaged in the business of manufacture and sale of atta, maida etc. The assessing authority has levied tax on sum charged separately in invoice on account of ‘hammali’ by assessee under the CST Act. The transactions of such nature were under CST Act. The matter reached up to the stage of Tribunal where Tribunal in their order allowed the appeal in favour of assessee and observed that sum paid by the dealer assessee to various hammals are in the nature of delivery charges having been paid to hammals separately and hence they have to be deducted from the sale price as such deduction are allowed u/s 2(h) of the CST Act which defines ‘sale price’.

Being aggrieved by this order revenue filed reference before the High Court. High Court upheld the decision of Tribunal and also distinguished the decision referred by revenue in case of Vimalchand Prakashchand vs. Comm. of Sales Tax (22 STC 22)(M.P). The Court also observed that handling charges; i.e., hammali charges were in the nature of cost of delivery of goods like coolie charges and had to be deductible from sale price.

[CST, M.P. vs. Flour & Food Ltd. (148 STC 344)(M.P.)]