2017 (5) TMI 467 - AT - Service Tax

IPR services - agreement with DSL for granting an exclusive non-transferable and non-assignable right, to use licenced information to manufacture, sell, distribute and market their products - Revenue entertained a view that the appellants provided intellectual property right service in terms of Section 65 (105) (zzr) readwith Section 65 (55a) and Section 65 (55b) of the FA, 1994 - whether the appellant transferred any intellectual property right to DSL, for a consideration? - Held that - It is clear that to be a taxable IPR under Finance Act, 1994, the same should be a right to intangible property namely trade marks, design, patent etc. under any law for the time being in force. It is clear and apparent that a right which is not recognized by any law for the time being in force in India cannot be brought under IPR for tax liability. The design or technical knowhow has to be first covered under an Indian law on the subject of intellectual property right, so that corresponding taxable service can be brought into picture. The amounts received by the appellant in terms of technical assistance agreements cannot be subjected to service tax under the category of IPR service - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Compliance with Tribunal's remand directions.
2. Classification of trade secrets as intellectual property rights (IPR) under Indian law.
3. Applicability of service tax on trade secrets.
4. Relevance of cited case laws and Board circulars.
5. Requirement of registration under Indian law for IPR service tax liability.

Issue-wise Detailed Analysis:

1. Compliance with Tribunal's Remand Directions:
The appellants argued that the Commissioner did not comply with the Tribunal's remand directions in the denovo order. They contended that the trade secret passed on to DSL is not a recognized intellectual property right under Indian law, and therefore, should not be subject to service tax.

2. Classification of Trade Secrets as Intellectual Property Rights (IPR) Under Indian Law:
The appellants maintained that trade secrets, classified as "undisclosed information," are not covered by Indian law as intellectual property rights. They cited the Board circular issued at the introduction of IPR service tax liability, which clarified that only IPRs covered under Indian law are chargeable to service tax. They argued that trade secrets do not fall within the definition of intellectual property right as per Section 65 (55a) of the Finance Act, 1994, because they are not recognized under any Indian law.

3. Applicability of Service Tax on Trade Secrets:
The appellants highlighted that the Ministry of Commerce clarified that trade secrets remain confidential indefinitely, provided their security is not breached. They argued that since there is no specific legislation in India regulating the protection of trade secrets, they are generally covered under the Contract Act, 1872. Consequently, trade secrets should not be subject to service tax as intellectual property rights.

4. Relevance of Cited Case Laws and Board Circulars:
The appellants referenced several case laws, including Indian Farmers Fertilizers Co-operation Ltd. vs. CCE, Bareilly, which observed that trade secrets are not protected by law in the same manner as trademarks or patents. They argued that the decisions relied upon by the Original Authority were either interim orders or did not examine the scope of the definition of intellectual property right service. The appellants also cited the Tribunal's decision in Thermax Ltd. vs. CCE, Pune – I, which referred to the Board circular clarifying that only IPRs covered under Indian law are chargeable to service tax.

5. Requirement of Registration Under Indian Law for IPR Service Tax Liability:
The Tribunal examined the statutory scope of tax entry under Section 65 (55a) and (55b) of the Finance Act, 1994. It noted that to be a taxable IPR, the right must be recognized by any law for the time being in force in India. The Tribunal found that the Original Authority's observation that IPR relating to unregistered trademarks, patents, etc., are also liable to service tax missed the statutory scope. The Tribunal emphasized that a right not recognized by any law in India cannot be brought under IPR for tax liability.

Conclusion:
The Tribunal concluded that the amounts received by the appellant under the technical assistance agreements could not be subjected to service tax under the category of IPR service. It found no merit in the impugned order and set it aside, allowing the appeal. The Tribunal's decision was pronounced in open court on 05/05/2017.