2015 (11) TMI 236 - AT - Service Tax

Intellectual Property Right Services - Technical know how service - whether the transfer of technical know how received by the appellant is a service which may be categorized under Intellectual Property Right Services - Held that - It is obvious from the definition of Intellectual Property Right that the right has to be a specific Right under a specific Law. Examples are given under the definition such as the Trade Mark which is a right provided under Trade Marks Act . Similarly the right mentioned as design in the definition is a right under the Design Act . Therefore we find that the technical know-how received by the appellant and the royalty payment made by the appellant to Unisys is nowhere established to result from the use of any Intellectual Property Right. Intellectual Property Right not covered by the Indian laws would not be covered under taxable service in the category of Intellectual Property Right Services. We are fortified in our view by Board Circular F.No. 80/10/2004-ST dated 17/9/2004 which clarified that Intellectual Property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e.IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
Interpretation of taxable service under Section 65 (105)(zzr) for Intellectual Property Right Services; Determination of whether the transfer of technical 'know how' constitutes Intellectual Property Right Services under Indian law.

Analysis:
The appellant, engaged in Software Development and Consultancy Services, entered into an agreement with Unisys Corporation for the use of technical information and know-how related to Document Processing System. The agreement required the appellant to pay a royalty on sales of products, and subsequent amendments extended this obligation to all products by TATA. The dispute arose when the tax authority sought to levy tax on the royalty paid by the appellant under the category of "Intellectual Property Right Services."

The Tribunal examined the definition of Intellectual Property Right Services under Section 65 (105)(zzr) and related provisions. It was crucial to establish whether the 'know how' received by the appellant fell under Intellectual Property Right Services. The Tribunal emphasized that Intellectual Property Right must be a specific right under Indian law, such as trademarks, designs, or patents. The absence of evidence linking the technical know-how to any Intellectual Property Right led the Tribunal to conclude that the services received did not qualify as Intellectual Property Right Services.

Moreover, the Tribunal referred to a Board Circular and a previous Tribunal decision to support its interpretation. The Circular clarified that only Intellectual Property Rights prescribed under Indian law are subject to service tax, excluding rights not covered by Indian legislation. The Tribunal's reliance on the Circular and the precedent highlighted the necessity for the Intellectual Property Right to be recognized under Indian law to be taxable.

In light of the above analysis, the Tribunal set aside the impugned order and allowed the appeal, emphasizing the lack of evidence establishing the technical 'know how' as falling within the scope of Intellectual Property Right Services. The Tribunal's decision focused on the specific legal requirements for Intellectual Property Rights under Indian law, ultimately determining the taxability of the services provided by the appellant.