Gujarat High Court Upholds GST Levy On Providing Corporate Guarantees But Reads Down The Deemed 1% Valuation Under Rule 28(2)

SC Upholds that Marketing of Assigned Music Rights for Own Commercial Benefit is Not a Taxable Service and Ancillary Marketing Obligations are Not Separately Taxable

The Supreme Court has clarified the service tax treatment of marketing and promotion expenditure incurred by a broadcaster on commercially exploiting acquired music and song video rights. The Court upheld the CESTAT’s view that such expenditure does not represent consideration for any taxable service to the film producers, since the broadcaster promoted the rights for its own benefit as assignee and therefore no taxable service relationship existed.

BRIEF FACTS OF THE CASE¹

• The Respondent was registered under service tax for providing multiple taxable services under various categories such as broadcasting, Advertising agency, Copyright Service, Business Auxiliary Service, Renting of Immovable Service, Cable operator services, Sponsorship services, etc. and was regularly discharging service tax
• During April 2016 to June 2017, the Respondent entered into Music Assignment Agreements (MAA) with film producers, copyright owners and artists (Assignors), under which it acquired exclusive, worldwide rights to distribute and commercially monetise the music rights for the full copyright term, against a Minimum Guarantee and a revenue share (overflow). The Respondent also incurred marketing and promotional expenses for these music rights, which were deducted from gross revenues for overflow computation.
• Based on an audit communication dated 04.07.2019, the Department took the view that the Respondent, by agreeing under such agreements to incur specified marketing and publicity costs for films and film music, was providing advertising/marketing services to Film Production Companies (FPC), recovering the value of such services through recoupment of these costs from music-rights revenues such expenditure constitutes a taxable service rendered by the Appellant to the FPC under section 66B of the Finance Act. Accordingly, SCN was issued proposing service tax demand on this basis.
• The Adjudicating Authority confirmed service tax with interest and penalties, holding that the aggregate mandated marketing and promotion spend across the agreements was consideration for a declared service under Section 66E(e) (agreeing to an obligation to do an act).
• The Authority relied, inter alia, on the MAA for the film Raees, under which the Respondent paid a Minimum Guarantee and was obliged to incur costs towards the marketing and promotion of the assigned works.
• The Respondent field the appeal before the CESTAT Mumbai, contending that it acted as owner/right-holder of the assigned music and promoted it solely for its own commercial exploitation, not as a service provider to the producers; that the impugned expenditure could not be treated as consideration under Section 67; and that the issue was covered by Sony Music Entertainment India Pvt. Ltd. (CESTAT Mumbai) and by CBIC Circular No. 178/10/2022-GST dated 03.08.2022 on the requirement of a genuine service relationship and consideration flow.
• Hon’ble CESTAT, allowed the appeal, holding that the essential elements of “service” under Section 65B(44), service provider, service recipient and consideration, were absent, the Respondent, as assignee of rights, was not in a service-provider–client relationship with the producers; and its marketing was for exploitation of its own rights, not for providing any declared service under Section 66E(e).
• Being aggrieved by the Hon’ble Tribunal Order, the Revenue filed the Special Leave Petition before the Hon’ble Supreme Court

HON’BLE SUPREME COURT OBSERVATIONS:

• The Supreme Court, vide order dated 07.08.2026, condoned the delay but found no good ground to interfere with the CESTAT Mumbai’s order dated 20.01.2026 and accordingly dismissed the Revenue’s civil appeal, thereby allowing the Tribunal’s findings to stand.
• The Supreme Court did not independently examine the detailed merits; nevertheless, the dismissal leaves undisturbed the Tribunal’s conclusion that the promotional expenditure incurred by Zee Entertainment related to the commercial exploitation of music and song-video rights acquired by it and did not constitute consideration for any separate advertising or marketing service rendered to the assignors.

AURTUS COMMENTS

• The decision reaffirms the significance of the commercial substance of the transaction over isolated contractual clauses in determining the characterisation and taxability of a transaction. It is crucial to determine whether the obligation under a contract is undertaken by a person on behalf of another and can be linked to a corresponding benefit and consideration. This principle has broader application and may also be relevant to franchise arrangements, distribution agreements, etc. Further, the ruling also places a necessary limitation on the application of the declared service category of “agreeing to do an act”, requiring an examination of the overall transaction and the commercial purpose served by the obligation.
• The Supreme Court’s dismissal of the Revenue’s SLP lends further finality and strengthens the applicability of this principle in similar cases. Although the ruling was rendered under the Finance Act, 1994, it carries significant persuasive value under GST, particularly in determining whether promotional expenditure incurred by a right-holder or licensee constitutes an independent supply of advertising or marketing services to the transferor. Applying the principle underlying CBIC Circular No. 178/10/2022-GST, a marketing covenant that is merely ancillary to the principal transaction of assignment or licensing of rights should not, in the absence of a clear and independent obligation undertaken for the transferor and a separately identifiable consideration, be treated as a taxable supply under Entry 5(e) of Schedule II to the CGST Act. The GST treatment would, however, remain dependent on the contractual terms and the parties’ conduct, including whether the promotion is undertaken for the assignee’s own commercial exploitation or expressly “on behalf of” and for the benefit of the rights owner.

Footnote

1 Commissioner of CGST and C.Ex Mumbai Vs. Zee Entertainment Enterprises Ltd. [Diary No. 41480/2026 ]