2014 (1) TMI 409 - AT - Service Tax

Demand of service tax - scientific or technical consultancy service - Transfer of intellectual property right - Held that - The appellant permitted M/s. Dhariwal Industries Ltd. to use the trade name Manikchand for pan masala, gutka etc. and also the formulae developed by the appellant for the manufacture of pan masala, gutka etc - transfer of intellectual property right comes under the purview of the service tax with effect from September 2004. As per the definition of intellectual property right provided under Section 65(55a), intellectual property right means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright. In view of the terms and conditions of the agreement under which the brand name and formulae are transferred to M/s Dhariwal Industries Ltd., we find that the demand under scientific and technical service is not sustainable hence set aside - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of demand for scientific or technical consultancy service.
2. Interpretation of intellectual property rights transfer.
3. Applicability of service tax on intellectual property rights transfer.

Analysis:
The appellant filed an appeal against an order confirming a demand for Rs.64,17,003, along with interest and penalties, on the grounds of providing scientific or technical consultancy service. The appellant claimed that the transfer of the trade name and formulae to another party falls under the category of "transfer of intellectual property right" (IPR) and not scientific or technical consultancy service. The appellant argued that since the demand was for a period before September 2004 when service tax on IPR transfer came into effect, the demand was not sustainable.

The Revenue supported the findings of the lower authority regarding the nature of the services provided. The Tribunal examined the definition of "scientific or technical consultancy" under Section 65(92) of the Finance Act, which includes advice, consultancy, or assistance in disciplines of science or technology. The Tribunal noted that the appellant allowed the use of the trade name and formulae by another party, which could be seen as providing scientific or technical assistance.

However, the Tribunal also considered the definition of "intellectual property right" under Section 65(55a) of the Act, which covers rights to intangible property like trademarks and designs. After reviewing the terms of the agreement transferring the brand name and formulae, the Tribunal concluded that the demand for scientific and technical service was not sustainable. The Tribunal emphasized that the transfer of intellectual property rights falls under the purview of service tax since September 2004, and as the demand was for a period before that, the appeal was allowed, and the demand was set aside.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the distinction between scientific or technical consultancy services and the transfer of intellectual property rights. The judgment clarified the applicability of service tax on IPR transfers and provided a detailed analysis based on the definitions and terms of the agreement involved in the case.