2013 (12) TMI 1273 - AT - Service Tax

Demand of service tax - Intellectual Property Services - Imposition of interest and penalty on the goodwill towards transfer of trademark licences - Held that - Goodwill is assigned with the Trademark of the business concern. The value of Goodwill pertaining to right to use would be paid for a period of 10 years from 01.05.2007. Thus, the applicant failed to make out a prima facie case for waiver of pre-deposit of the entire amount of adjudged dues - Conditional stay granted.

Summary

Issues:
Service tax on goodwill towards transfer of trademark licences under Intellectual Property Services.

Analysis:
The case involved a dispute regarding the demand of service tax on goodwill towards the transfer of trademark licenses under Intellectual Property Services. The applicant, engaged in manufacturing and selling motor cars and spare parts, transferred the spare parts components division to another company under a Business Transfer Agreement. The Commissioner confirmed the demand of service tax on the goodwill related to the transfer of trademark licenses at the time of sale of the spare parts division.

The applicant argued that the demand of service tax on goodwill was not covered under Intellectual Property Rights (IPRs) as per the Finance Act, 1994. The applicant contended that trademarks and goodwill are distinct under IPRs. On the other hand, the authorized representative argued that goodwill is covered under the Trade Marks Act, 1999, citing a decision of the Hon'ble Supreme Court.

After considering both sides and examining the relevant provisions of the Finance Act, 1994, it was noted that Intellectual Property Right is defined to include intangible property like trademarks, designs, patents, but not copyright. The applicant licensed its trademark to the other company, which would pay a license fee based on domestic sales. The transfer of goodwill was associated with trademarks, patents, and know-how, which are considered intangible property. Sections 38 and 39 of the Trademarks Act, 1999, were referred to regarding the assignment and transmission of trademarks with or without goodwill.

The Tribunal observed that in the present case, goodwill was assigned along with the trademark of the business concern, and the value of goodwill related to the right to use would be paid for a specified period. As the applicant failed to establish a prima facie case for the waiver of pre-deposit of the entire amount of dues, they were directed to deposit a specific sum within a given timeframe. The balance of the adjudged dues would remain stayed for recovery until the appeal was disposed of, with a compliance report due on a specified date.

In conclusion, the Tribunal's decision highlighted the interpretation of Intellectual Property Rights in relation to the demand of service tax on goodwill concerning the transfer of trademark licenses, emphasizing the legal aspects of trademarks, goodwill, and their assignment under the relevant laws.