2012 (6) TMI 454 - AT - Service Tax

Intellectual property right service - Exemption under Notification 12/2003-ST - deduction of goods sold from gross value - The Appellants owned the trade Mark EICHER registered in India in respect of Tractors. They entered into an agreement dated 27-05-2005 for permitting M/s Tafe Motors and Tractors Limited (TMTL) and received Rs.39.60 crores in consideration of such transfer. They did not pay any service tax on this amount. Held that - 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 fact that certain post transfer conditions are attached to transfer of the right does not change the nature of the contract. A person selling a particular product to a dealer may impose post sale conditions like he should not re-sell the goods in loose forms, the dealer should sell the product only from a premises displaying the name of the manufacturer, the dealer should not re-sell the goods in other than specified territories or that he should not resell the goods or to the effect that the goods sold should be used only for a specified purpose only does not alter the nature of the transaction as a sale. So the transaction would not be covered by clause (a) of section 65 (55b). But we do not see any reason why the transaction would not be covered by clause (b) section 65 (55b). So the transaction amounts to Intellectual Property Service. Definition of sale in section 2 (h) of Central Excise Act - held that - This provisions can not be interpreted to mean that provisions that are relevant for tangible goods will apply for intangible goods when the subject involved requires a distinction to be made. Definition of sale in section 4 of Sale of Goods Act, 1930 - held that - The goods namely the Trade Mark Eicher continues to be the property of the transferor or more appropriately the licensor which is the word used in the concerned agreement. Secondly an agreement to sell become a sale only when all the conditions of the agreement are complied with. In this case there are conditions to be complied with by the Appellants in perpetuity and at no point of time the conditions be considered to be fully complied with. There is no sale involved and the appellants are not entitled to the benefits under Notification 12/2003 is a valid argument.

Summary

Issues Involved:
1. Whether the transfer of the trademark "EICHER" constitutes a sale or a service.
2. Applicability of service tax on the transaction.
3. Eligibility for exemption under Notification 12/2003-ST.
4. Imposition of penalties under section 76 of the Finance Act, 1994.

Detailed Analysis:

1. Whether the transfer of the trademark "EICHER" constitutes a sale or a service:

The appellants argued that the transfer of the trademark "EICHER" was a permanent sale and not a temporary transfer, and therefore, it should not be considered a service. They relied on the definitions of "goods" and "sale" under the Sale of Goods Act and the Central Excise Act, asserting that the transaction constituted a sale of goods. However, the agreement did not use the term "sale" and there was no evidence of sales tax being paid on the transaction.

The Revenue contended that the trademark was still being used by the appellants for other products and in other countries, indicating that the transfer was not in perpetuity. The agreement contained several clauses that suggested it was a conditional transfer rather than an outright sale. The Tribunal examined the nature of the agreement and concluded that it was a contract for the transfer of the right to use the trademark for limited purposes on a permanent basis, but it did not constitute a sale. The transaction was covered by clause (b) of section 65 (55b) of the Finance Act, 1994, which pertains to permitting the use or enjoyment of an intellectual property right.

2. Applicability of service tax on the transaction:

The Tribunal found that the transaction amounted to an "Intellectual Property Service" as defined under section 65 (55b) of the Finance Act, 1994. The appellants' argument that the definition of sale in section 2 (h) of the Central Excise Act applied only to tangible goods and not to intangible goods like trademarks was accepted. The Tribunal also noted that the definition of sale in section 4 of the Sale of Goods Act, 1930, was not applicable because the trademark continued to be the property of the licensor, and the conditions of the agreement were to be complied with in perpetuity.

3. Eligibility for exemption under Notification 12/2003-ST:

The appellants claimed exemption under Notification 12/2003-ST, arguing that the entire value sought to be charged for service tax represented the sale value. However, the Tribunal concluded that there was no sale involved in the transaction, and therefore, the appellants were not entitled to the benefits under the notification.

4. Imposition of penalties under section 76 of the Finance Act, 1994:

The Tribunal upheld the demand for tax and interest as confirmed in the impugned order. However, it found that the dispute involved interpretation of complicated legal issues, and it was unfair to allege an intention to evade tax on the part of the appellants. Therefore, the Tribunal invoked the provisions of section 80 of the Finance Act and waived the penalty imposed on the appellants.

Conclusion:

The appeal was partially allowed by setting aside the penalty imposed, while the demand for tax and interest was confirmed. The Tribunal concluded that the transfer of the trademark "EICHER" did not constitute a sale but was an intellectual property service subject to service tax. The appellants were not entitled to exemption under Notification 12/2003-ST.