2015 (6) TMI 589 - AT - Service Tax

Intellectual Property Service - whether the transfer of technology and know-how by the Japanese holding company to the assessee fulfils the requirements of Section 65 (105) (zzr) read with the definition of Intellectual Property Rights in section 65 (55 a), has not been considered by the adjudicating authority - Held that - It is appropriate to remit the matter for consideration afresh and grant liberty to the assessee to raise any other issue as well before the adjudicating authority including as to whether the provisions of Section 65 (105) (zzr) are applicable to the assessee s transactions, since the payment of royalties event though subsequent were pursuant to an agreement which was earlier to introduction of the taxable service. The assessee shall file a Memorandum of Written Submissions within 3 weeks from today before the adjudicating authority on this aspect but shall not however be entitled to personal hearing again. Any case supporting the assesse s contentions may also be appended to the Memorandum of Written Submissions, within the time stipulated herein. - Matter remanded back - Decided in favour of assessee.

Summary

Issues involved:
1. Service tax liability on royalty payments for technical know-how.
2. Interpretation of the definition of Intellectual Property Rights under Section 65 (55a) and (55b) of the Act.
3. Applicability of taxable service under Section 65 (105) (zzr) to the transactions.
4. Consideration of royalty payments made before and after the introduction of taxable service.

Analysis:

Issue 1: Service tax liability on royalty payments for technical know-how
The appeal was against an adjudication order confirming a service tax liability of &8377; 47,70,236 on royalty payments made by the assessee to a Japanese company for technical know-how. The Revenue initiated proceedings based on the assumption that the payments constituted a taxable service under Section 65 (105) (zzr) of the Act. The adjudicating authority confirmed the liability, dropped a portion of the demand, ordered interest recovery, and imposed penalties under relevant sections of the Act.

Issue 2: Interpretation of the definition of Intellectual Property Rights
The contention of the assessee was that the technology transferred by the Japanese company did not constitute Intellectual Property Rights (IPS) as defined under Section 65 (55a) and (55b) of the Act. The adjudicating authority concluded that the transferred specifications, designs, and processes constituted intangible goods needing protection under law, thus falling under IPS. However, the appellate tribunal found the analysis lacking and emphasized the requirement for a right to intangible property under existing laws to constitute IPS.

Issue 3: Applicability of taxable service under Section 65 (105) (zzr)
The appellant argued that since the technology transfer agreement predated the introduction of the taxable service, subsequent royalty payments should not create a taxable liability. Citing relevant case laws, the appellant contended that the provision of service occurred at the agreement's inception. The tribunal noted that the adjudicating authority did not consider whether the technology transfer fulfilled the requirements of Section 65 (105) (zzr) and decided to remit the matter for fresh consideration.

Issue 4: Consideration of royalty payments made before and after the introduction of taxable service
The tribunal remanded the case to the Commissioner of Service Tax for a new adjudication, allowing the assessee to raise additional issues. It directed the assessee to submit a Memorandum of Written Submissions within three weeks, without entitlement to a personal hearing. The decision set aside the earlier adjudication order and did not impose any costs.

In conclusion, the tribunal's judgment focused on the proper interpretation of Intellectual Property Rights, the applicability of taxable services to specific transactions, and the timing of royalty payments concerning taxable liabilities. The case was remanded for a fresh adjudication, providing the assessee with an opportunity to present additional arguments and supporting cases.