2016 (12) TMI 100 - AT - Service Tax

Exigibility to tax - royalties - section 65(105)(zzr) of Finance Act, 1994 - Held that - It is apparent from the definition of the taxable service that the liability will arise in relation to intellectual property service provided by the holder of intellectual property right - Thus, while the taxable service stems from the relationship of two entities, the right that is vested in the holder is protected from the rest of the world within the jurisdiction of the law referred to in section 65(55a). To be liable to the tax, the provider must be the holder of the intellectual property right which is one that is enforceable against all others, and not just against the recipient of the service. The right that is transferred is the technical know-how which may be a service but is not in relation to intellectual property service which pertains to intellectual property rights. In the case of ELGI Rubber Products Ltd. 2010 (2) TMI 305 - CESTAT, BANGALORE , the Tribunal was called upon to decide the legality of demand on reverse charge basis on receipt of a service that was volunteered by the recipient as intellectual property service which Revenue sought to tax under a different entry. The ingredients that render the service taxable under section 65(105)(zzr) was not subject to scrutiny by the Tribunal and a reference to technical know-how therein can hardly be adduced as settling the classification of the activity as the taxable service. Per contra, paragraph 9.1 of circular no. B2/8/2004-TRU dated 10th September 2004 of Central Board of Excise & Customs, cited by Learned Counsel for appellant does amplify the object of tax as intellectual property rights under prescribed laws applicable in India - we notice a lack in the impugned order. The demand is without authority of law and we set it aside - appeal allowed - decided in favor of assessee.

Summary

Issues:
Exigibility of royalties under Section 65(105)(zzr) of Finance Act, 1994.

Detailed Analysis:
1. The dispute in the appeal revolves around the taxability of royalties received by the appellant under Section 65(105)(zzr) of the Finance Act, 1994, which pertains to services provided by the holder of intellectual property rights.

2. The Order-in-Appeal upheld the demand on royalties paid by M/s. MDB Chemicals (I) Pvt. Ltd. to the appellant for using their technology and documentation for production and marketing, based on the definitions of 'intellectual property right' and 'intellectual property service' under the Finance Act, 1994.

3. The appellant's counsel argued that the lower authorities misinterpreted the definitions and context, emphasizing that the appellant did not have proprietary rights over the know-how, and the agreement was enforceable only as a contract. Case laws were cited to support this argument.

4. The Authorized Representative supported the lower authorities' findings and cited a relevant Tribunal decision.

5. The Tribunal analyzed the definition of taxable service under Section 65(105)(zzr) and emphasized that the liability arises from the intellectual property service provided by the holder of intellectual property rights, which must be enforceable against all entities under the relevant laws.

6. The Tribunal clarified that the enforceability of rights is protected by contract law for specific purposes, and without registration under patent, trademark, or design laws, the rights do not vest in the appellant. Therefore, the technical know-how transferred does not fall under intellectual property service.

7. Reference was made to a Tribunal decision regarding the taxation of intellectual property service on a reverse charge basis, highlighting the importance of scrutinizing the specific elements that render a service taxable under Section 65(105)(zzr).

8. The Tribunal noted the consistent stance in previous decisions regarding taxability based on the identification of the class of intellectual property rights provided to the recipient, which was lacking in the impugned order.

9. Conclusively, the Tribunal found the demand unauthorized by law and set it aside, allowing the appeal in favor of the appellant.

This detailed analysis highlights the key arguments, legal interpretations, and precedents considered by the Tribunal in reaching the decision to set aside the demand on royalties under Section 65(105)(zzr) of the Finance Act, 1994.