2008 (7) TMI 307 - AT - Service Tax

Demand on the ground that applicant is recipient of intellectual property services - contention of appellant is that in the present case there are no transfer of right to use trade marks, designs etc. - agreement is clearly indicating that the applicants are receiving the intellectual property right in respect of the designs for manufacture of parts of cycles on payment of royalty - not a fit case for total waiver of service tax stay not granted completely

Summary

Issues:
1. Waiver of pre-deposit of service tax and penalties.
2. Interpretation of intellectual property services.
3. Transfer of intellectual property rights in the agreement.
4. Time bar for the demand period.
5. Liability for service tax on transfer of intellectual property rights.

Analysis:

1. The applicant sought a waiver of pre-deposit of service tax amounting to Rs. 27,24,000/- and penalties. The demand was initially based on the recipient of intellectual property services. However, it was noted that the demand related to consulting engineering services was dropped, and a portion of the total demand was also dropped due to limitation issues.

2. The applicant contended that the agreement with National Bicycle Industries Company Ltd., Japan did not involve the transfer of intellectual property rights as defined under the Finance Act. The agreement focused on the transfer of technical know-how to enhance production and quality, rather than the transfer of intangible property like trademarks or designs. The argument was based on the absence of a transfer of rights to use trademarks or designs.

3. On the contrary, the revenue argued that the agreement involved the transfer of intellectual property rights related to designs of bicycle parts to the applicant. The applicant was receiving designs for parts such as frame designs, part designs, and assembled designs, indicating the transfer of intellectual property rights, thus making them liable for service tax.

4. The issue of time bar was raised concerning the demand period from April 2005 to September 2005. The applicant claimed that the demand for this period was time-barred under the provisions of Section 73 of the Finance Act, which limits the time within which demands can be raised.

5. The tribunal found that the applicants were indeed receiving intellectual property rights related to designs for manufacturing bicycle parts, for which they paid a royalty. Consequently, it was determined that a total waiver of service tax was not warranted. The applicants were directed to deposit Rs. Five Lakhs within eight weeks, after which the pre-deposit of the remaining service tax and penalties would be waived, taking into account the facts and circumstances of the case and the issue of time bar. Compliance was required by 8th October 2008.