2013 (9) TMI 471 - AT - Service Tax

Service Tax on Royalty - Brand Name - Nature of Service - Intellectual Property Rights Services or Not - Revenue was of the view that the services rendered by Air India to AICL would come within the category of Intellectual Property Rights Services Held that - The Service Tax demand had been made on the whole amount of royalty without explaining how foregoing of rights or sharing of domain knowledge would come under the Intellectual Property Right Services - There was not even a whisper about the services rendered in this regard by the appellant to M/s AICL - Therefore, confirmation of demand on the entire amount of royalty received was not sustainable in law. As regards the question what should be the consideration for usage of brand name, there were methods available for doing this by expert in the field - The department does not seem to have utilized the services of expert in assessing the value of the brand and its usage - In the absence of such an assessment, it was difficult to sustain the impugned demand - The appellant themselves had amended their MOU retrospectively, wherein it had been provided that the royalty was payable only for foregoing their rights in operation in certain routes. Waiver of Pre-deposit Pre-deposits were waived - The authority should have examined whether such retrospective amendment of the MOU was permissible or not - the appellant was a Government of India Undertaking and had been ailing for a long time - appeal allowed by way of remand - Stay Granted.

Summary

Issues involved: Appeal against Service Tax demand on royalty payments for Intellectual Property Rights Services.

Detailed Analysis:

1. Background and Facts: The appellant, M/s Air India Ltd., entered into a Memorandum of Understanding (MOU) with its subsidiary, M/s Air India Charters Ltd. (AICL), allowing AICL to operate low-cost carrier flights to Gulf Sector using Air India's international traffic rights and brand name. AICL agreed to pay 25% royalty to Air India. The department demanded Service Tax on the royalty payments, considering them as Intellectual Property Rights Services.

2. Appellant's Argument: The appellant contended that the royalty payments were for foregoing operational rights in certain routes, not for brand name usage or domain knowledge. They retroactively amended the MOU to reflect this change, which was decided in board meetings of both companies after legal advice. The appellant argued that the demand was not justified.

3. Revenue's Argument: The Revenue argued that the retrospective amendment was an attempt to evade Service Tax liability. They suggested remanding the case to consider the board meeting minutes and questioned the timing of obtaining legal opinion after the board's resolution.

4. Tribunal's Decision: The Tribunal analyzed the original agreement and found that the demand on the entire royalty amount was unsustainable as it did not explain how foregoing operational rights or sharing domain knowledge constituted Intellectual Property Rights Services. The Tribunal also noted the lack of expert assessment on the brand name's value. They considered the retrospective amendment and decided not to order any pre-deposit due to the appellant's status as a government undertaking.

5. Conclusion: The Tribunal allowed the appeal by remanding the case to the adjudicating authority for a fresh consideration based on the directions provided. The requirement of pre-deposit was waived, and the appellant was to be heard before a new order was passed.

This judgment highlights the importance of properly categorizing services for tax purposes, the need for expert assessments in valuation, and the significance of legal procedures in making retrospective amendments to agreements.