Levy of Service Tax on Lease of Cinematographic Films : An Issue Requiring Revisiting?

The Madras High Court recently in AGS Construction has repelled the challenge to levy of service tax on lease of cinematographic films, inter alia, declaring that the Parliament has legislative competence to impose service tax and in any case the levy is on temporary transfer of cinematographic films which does not amount to a sale and is thus not liable to sales tax/Value Added Tax which are within the exclusive competence of the State Legislatures. This article examines the correctness of the view enunciated in AGS Construction from multiple perspectives in view of the wide ramifications of the judgment and especially the delicate federal balance which finds itself a basic structure of the Indian Constitution. While the correctness of this decision is pending consideration of the Supreme Court, the author advances certain key issues which merit examination for addressing the issue holistically