2014 (4) TMI 219 - AT - Service Tax

Waiver of pre deposit - Receipt for goodwill - Intellectual Property Service - Whether the amount of ₹ 8.98 crore received by the Applicant from KDHP on the transfer of the Goodwill , viz. Kanan Devan , along with transfer of the ongoing business, against two Deeds of Transfer dated 30.03.2005 and 02.07.2005, be subjected to service tax levy, under the category of Intellectual Property Service or otherwise - Held that - Prima facie, we find that the Applicant themselves had declared in the respective Deeds allocating the total amount, ₹ 8.98 crore towards the use of such Goodwill , which the Revenue has considered as the gross taxable value in the services of allowing to use the Goodwill , which would fall under the definition of Intellectual Property Right and consequently, it is chargeable to service tax under the taxable services, Intellectual Property Services - at the time of disposal of the Appeal. No financial hardship has been pleaded. In the result, the Applicant failed to make out a prima facie case for total waiver of predeposit of the dues adjudged - Conditional stay granted.

Summary

Issues:
1. Whether the amount received by the Applicant from another party on the transfer of 'Goodwill' and right to use a specific name should be subjected to service tax levy under 'Intellectual Property Service' category.
2. Whether the extended period of limitation should be invoked for the demand raised by the Revenue.

Analysis:

Issue 1:
The Applicant claimed that the amount received for intangibles, including 'Goodwill' and the right to use a specific name, was solely for stamp duty purposes and not consideration for the transfer of 'Goodwill'. They argued that the specific name in question could not be registered as a trademark, and there was no absolute transfer of 'Goodwill' to the other party. The Applicant maintained that the subsequent agreement allowing the use of the name should not be considered. However, the Revenue contended that the amount received was for the use of 'Goodwill' and fell under 'Intellectual Property Right'. The Tribunal examined the deeds of transfer and the corporate license agreement. It noted the allocation of the amount towards intangibles, including 'Goodwill', and the subsequent agreement granting a license to use the specific name. The Tribunal found the Applicant's argument regarding the name not being a forcible argument as they had allowed its use for 30 years. Ultimately, the Tribunal agreed with the Revenue that the amount received was chargeable to service tax under 'Intellectual Property Services'.

Issue 2:
Regarding the extended period of limitation, the Tribunal found the Commissioner's reasoning for invoking it to be convincing. The Commissioner had provided detailed findings against the Applicant's arguments and concluded that the services rendered fell under 'Right to Intellectual Property'. The Tribunal considered the mixed question of law and facts involved in the extended limitation period. While the Applicant failed to establish a prima facie case for total waiver of predeposit, the Tribunal directed a predeposit of 25% of the service tax within six weeks, with the balance dues waived and recovery stayed during the appeal. Non-compliance would result in dismissal of the appeal.

In conclusion, the Tribunal upheld the service tax levy on the amount received for 'Goodwill' and the right to use a specific name, and supported the invocation of the extended limitation period by the Revenue. The Applicant was directed to make a predeposit to proceed with the appeal process.