2016 (10) TMI 619 - AT - Service Tax

Import of services - reverse charge method - information technology service or intellectual property service - classification of services - period from 10th September 2004 to 31st March 2007 - transfer of technology against payment based on downloads made by subscribers of the appellant using the service of the provider - involvement of copyright - Reverse Charge Mechanism - rule 2(1)(d)(iv) of Service Tax Rules, 1994 - Held that - the decision in the case of Government of India v. Indian Tobacco Association 2005 (8) TMI 113 - SUPREME COURT OF INDIA relied upon where it was held that it is only after enactment of Section 66A, w.e.f. 18-4-2006, that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider - the demand relating to the period prior to 18th April 2006 does not have the authority of law. Demand for the period after 18-4-2006 - Section 65(105)(zzr) - section 65(55a) - copyright outside the scope of intellectual property service - Held that - Section 65(105)(zzr) has been invoked in the notice but the nature of technical knowhow transferred to appellant from among trade mark, design, patent etc. has not been identified. Likewise, it has not been established if the said intellectual property right was acknowledged under the relevant Indian law and, thereby, within the ambit of the definition in section 65(55a). This is a critical flaw. The decision in the case of Tata Consultancy Services Ltd. v. Commissioner of Service Tax, Mumbai 2015 (11) TMI 236 - CESTAT MUMBAI relied upon - the demand for the period after 18-4-2006 also not tenable. Demand not sustainable - appeal allowed - decided in favor of appellant.

Issues:
1. Classification of service as 'intellectual property service' under section 65(105)(zzr) of Finance Act, 1994.
2. Applicability of service tax liability on services received from abroad before 18th April 2006.
3. Reverse charge mechanism for tax payment on services received from abroad.
4. Identification and establishment of 'technical knowhow' transferred as 'intellectual property right' under Indian law.
5. Validity of demand for the period prior to 18th April 2006.
6. Compliance with the definition of 'intellectual property right services' under Indian law.

Analysis:
1. The appeal involved the classification of the service provided by M/s. Tata Teleservices Ltd. as 'intellectual property service' taxable under section 65(105)(zzr) of the Finance Act, 1994. The appellant contended that the service was 'information technology service' and not 'intellectual property service,' challenging the basis of taxation.

2. The issue of service tax liability on services received from abroad before 18th April 2006 was raised, citing legal precedents such as the Union of India v. Indian National Shipowners' Association case. The appellant argued that the levy of tax on 'intellectual property right service' was not valid before specific amendments came into effect.

3. The demand for tax payment under the reverse charge mechanism on services received from abroad was contested. The appellant questioned the authority of law for such taxation, highlighting the implications of statutory provisions and legal judgments on the liability to pay tax.

4. The identification and establishment of the 'technical knowhow' transferred as 'intellectual property right' under Indian law were crucial. The Tribunal emphasized the necessity for specific categorization and acknowledgment of the intellectual property right within the ambit of the relevant Indian legal framework.

5. The validity of the demand for the period prior to 18th April 2006 was questioned, emphasizing the legal authority and compliance with statutory provisions for imposing tax liabilities retrospectively.

6. Compliance with the definition of 'intellectual property right services' under Indian law was a significant aspect of the judgment. The Tribunal stressed the need for clarity and specificity in identifying the nature of intellectual property rights transferred and ensuring alignment with the legal framework.

In conclusion, the appeal was allowed, and the impugned order was set aside due to the noted infirmities and lack of sanctity of law in the demand for tax payment. The detailed analysis addressed various legal aspects concerning the classification, liability, and compliance related to the service tax dispute.

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