2012 (4) TMI 104 - AT - Service Tax

Demand - Claim for exemption under Notification 12/2003-ST which was not claimed in adjudication proceedings - Revenue was of the view that the permission granted as per the agreement to TAFE to use the Trade Mark for tractors is Intellectual Property Right Services as defined in section 66(55a) and 66(55b) of Finance Act ,1994 and hence the appellants should have paid service tax on the consideration receive - The Counsel submits that as per this definition in the Constitution transfer of right to use, whether or not for a specified period, constitutes sale. In their case the transfer is in perpetuity and there cannot be a doubt that it constituted sale - The appellants continues to be owner of the trademark EICHER and they have only permitted TMTL to use the Trademark in relation to tractors and is squarely covered by the definition of intellectual property service - When the contract is read as a whole it is indeed a contract for transfer of the right to use the Trademark for limited purposes but on a permanent basis - the impugned contract, in its pith and substance is not a transfer of right to use and is more in the nature of permission to use the trademark which continues to be the property of the licensor - The Appeal is thus allowed partially by setting aside the penalty imposed. However the demand for tax and interest are confirmed.

Summary

Issues Involved:
1. Admissibility of additional grounds of pleading
2. Nature of the transaction involving the trademark "EICHER"
3. Applicability of service tax on the transaction
4. Eligibility for exemption under Notification 12/2003-ST
5. Imposition of penalties under section 76 of the Finance Act, 1994

Issue-wise Detailed Analysis:

1. Admissibility of Additional Grounds of Pleading:
The appellants filed a Miscellaneous application to adduce additional grounds of pleading, which included legal pleadings such as relying on the definition of sale in the Central Excise Act and claiming exemption under Notification 12/2003-ST. The Tribunal allowed this Miscellaneous Petition, recognizing that these were essentially legal pleadings.

2. Nature of the Transaction Involving the Trademark "EICHER":
The appellants owned the trademark "EICHER" and entered into an agreement with Tafe Motors and Tractors Limited (TMTL), receiving Rs. 39.60 crores for permitting the use of the trademark. The appellants argued that this was a permanent transfer constituting a sale, not a service. However, the agreement did not use the term 'sale,' and there was no evidence of sales tax being paid, suggesting it was not a sale. The Tribunal noted that the agreement included several conditions indicating that the appellants retained ownership and control over the trademark, making it a conditional transfer rather than an outright sale.

3. Applicability of Service Tax on the Transaction:
The Revenue argued that the transaction fell under "Intellectual Property Right Services" as defined in sections 65(55a) and 65(55b) of the Finance Act, 1994. The Tribunal agreed, stating that the transaction amounted to permitting the use or enjoyment of an intellectual property right, thus making it liable for service tax. The Tribunal also noted that the transaction did not meet the criteria for a sale under the definitions provided in the Sale of Goods Act and the Central Excise Act.

4. Eligibility for Exemption Under Notification 12/2003-ST:
The appellants claimed that if the transaction involved any service, they were eligible for exemption under Notification 12/2003-ST, which exempts the value of goods sold from service tax. However, the Tribunal concluded that since the transaction was not a sale, the appellants were not entitled to this exemption. The Tribunal emphasized that the appellants had not paid sales tax on the transaction, further supporting the conclusion that it was not a sale.

5. Imposition of Penalties Under Section 76 of the Finance Act, 1994:
The Tribunal upheld the demand for tax and interest but set aside the penalties imposed under section 76. The Tribunal reasoned that the dispute involved complicated legal issues and it was unfair to allege an intention to evade tax on the part of the appellants. Therefore, invoking the provisions of section 80 of the Finance Act, the Tribunal waived the penalties.

Conclusion:
The appeal was partially allowed. The Tribunal confirmed the demand for service tax and interest but set aside the penalties imposed on the appellants. The Tribunal's decision was based on the interpretation that the transaction constituted an intellectual property service rather than a sale, making it liable for service tax while recognizing the complexity of the legal issues involved in waiving the penalties.