2015 (5) TMI 499 - AT - Service Tax

Waiver of pre-deposit - Intellectual Property Right Services - Held that - Applicant has transferred their ownership right and knowhow to their clients and by receiving the consideration from their client. The clients have become absolutely owner of these rights. In these circumstances, we are convinced that the argument advanced by ld. Counsel for the applicant that it is a transaction of sale of goods i.e tangible goods. Therefore applicant is not liable to be taxed under Intellectual Property Right Services, the same view has been supported by the CBEC circular No. 80/10/2004-ST dated 17.9.2004 - applicant has made out a case of complete waiver of pre-deposit. Therefore, we waive the requirement of pre-deposit of entire amount of service tax interest and penalties and stay recovery thereof, during the pendency of the appeal. - Stay granted.

Summary

Issues:
- Waiver of pre-deposit of demand confirmed under Intellectual Property Right Services
- Interpretation of agreements with Alembic Ltd. and Dabur Pharma Ltd.
- Liability to pay service tax under Intellectual Property Right Services
- Applicability of CBEC circular on permanent transfer of intellectual property rights

Analysis:

The judgment revolves around the issue of seeking a waiver of pre-deposit of the demand confirmed under the category of Intellectual Property Right Services. The applicant had entered into agreements with Alembic Ltd. and Dabur Pharma Ltd., transferring ownership rights and know-how to the clients in exchange for consideration. The Revenue contended that the applicant provided a right to use their know-how to the clients, making them liable to pay service tax under Intellectual Property Right. The Tribunal examined the agreements and concluded that the transfer of ownership rights constituted a sale of tangible goods, not covered under Intellectual Property Right Services.

In the case of Alembic Ltd., the agreement detailed the transfer of know-how for pharmaceutical products, specifying the comprehensive scope of the transferred rights and the lump sum consideration. Similarly, the agreement with Dabur Pharma Ltd. involved the assignment of patents, patent applications, and related know-how for oncology activities. The Tribunal analyzed these agreements to determine the nature of the transactions and the implications for service tax liability.

The applicant argued that the transfer of ownership rights to clients did not fall under the definition of Intellectual Property Right Services, as they were selling their know-how outright, not temporarily transferring rights. Relying on a CBEC circular stating that permanent transfer of intellectual property rights does not amount to rendering a service, the Tribunal agreed with the applicant's interpretation. They found that the agreements constituted a transaction of sale of tangible goods, exempting the applicant from service tax liability under Intellectual Property Right Services.

Ultimately, the Tribunal granted a complete waiver of pre-deposit, citing the applicant's case and the CBEC circular as supporting evidence. They waived the requirement of pre-deposit for the entire amount of service tax, interest, and penalties, staying the recovery during the appeal's pendency. This judgment clarifies the distinction between permanent transfer of intellectual property rights and taxable services, providing relief to the applicant in this case.