2018 (1) TMI 214 - AT - Service Tax

Liability of service tax - transfer of use of the logo - Royalty income - Intellectual Property Right Service - extended period of limitation - Held that - it is seen that the goods do have a separate trademark such as Levokast, Apiverin-M, Prestige etc. Apart from this, the packings also contain the ttklogo. Thus, though the goods use the logo, it cannot be said that it is a trademark for these goods, as these goods have separate registered trademark. Again, the appellants have registered the logo under the Copyright Act. Any infringement of right pertaining to the logo would fall under Copyright Act and not under Trademark Act. The provisions of Copyright Act describe the situations of protection afforded to the copyright. This is different from the rights attached to a trademark. The logo being registered as a copyright, in case of infringement of the same, the right falls within the Copyright Act and would be enforceable by the appellants under the said Act only and not under the Trademark Act. The decision in the case of M/s ESPN Software India (P) Ltd. and M/s Turner International India Pvt. Ltd. Versus CST, New Delhi 2013 (10) TMI 1161 - CESTAT NEW DELHI referred, where the Tribunal had occasion to analyse the dispute relating to cartoon characters. The assesse therein contended that these cartoon characters are artistic work and covered under copyright. Whereas, the Revenue alleged the same to be Trademark and raised the demand under IPR services - After analysing the definition of copyright and trademark, the Tribunal held that such cartoon characters fall under copyright only - The facts being similar in our view, the said decision is applicable to this case. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the logo as a copyright or trademark.
2. Liability to pay service tax on royalty income.
3. Applicability of the extended period of limitation for issuing the Show Cause Notice (SCN).

Detailed Analysis:

1. Classification of the Logo as a Copyright or Trademark:
The primary issue revolves around whether the logo "ttk" should be classified as a copyright or a trademark. The appellant argued that the logo is registered as a copyright, which is inherently protected under the Copyright Act. The definition of Intellectual Property Right Service (IPRS) under Section 65(55a) of the Finance Act, 1994, excludes copyright. The appellant emphasized that the logo is artistic in nature and registered under the Copyright Act since 1983, which predates the introduction of service tax. The appellant further argued that the logo does not serve the function of a trademark as defined under Section 2(b) of the Trademark Act, since the goods have their own trademarks, and the logo is used merely for artistic representation.

The respondent, however, contended that the logo is used in relation to the goods manufactured and marketed by the licensee, which makes it a trademark under the Trademark Act. The respondent argued that the logo does not possess artistic value and is merely picturized calligraphy, thus falling under the Trademark Act.

The Tribunal, after examining the definitions and the registration documents, concluded that the logo is indeed a copyright. The Tribunal noted that the goods have separate registered trademarks, and the logo is used additionally. The registration under the Copyright Act and the artistic nature of the logo were upheld, and it was determined that any infringement would fall under the Copyright Act, not the Trademark Act. The Tribunal referenced the case of ESPN Software India Pvt. Ltd., where cartoon characters were classified as artistic works under the Copyright Act, supporting the appellant's position.

2. Liability to Pay Service Tax on Royalty Income:
The appellant argued that since the logo is a copyrighted work, it is excluded from IPRS, and hence, no service tax is payable on the royalty income. The appellant also pointed out that VAT has been paid on the royalty income, and as per the decision in Imagic Creative Pvt. Ltd. by the Supreme Court, VAT and service tax are mutually exclusive.

The Tribunal agreed with the appellant, stating that the logo being a copyright excludes it from IPRS, and thus, the levy of service tax on the royalty income is not sustainable. The Tribunal also noted the payment of VAT on the royalty income, reinforcing the mutual exclusivity of VAT and service tax.

3. Applicability of the Extended Period of Limitation:
The appellant challenged the issuance of the SCN in 2008, invoking the extended period of limitation on grounds of suppression of facts. The appellant argued that all necessary documents were provided to the department, and the royalty income was reflected in the returns. The department had earlier requested the appellant to furnish a copy of the agreement and had issued a letter in 2006 demanding service tax on the royalty income. The appellant had responded, clarifying that the logo is a copyrighted work and not liable for service tax under IPRS.

The respondent maintained that the extended period of limitation was applicable as the appellant failed to discharge the service tax liability despite the department's demand.

The Tribunal found the appellant's arguments convincing, noting that the appellant had provided all necessary documents and the royalty income was reflected in the returns. The Tribunal concluded that the allegation of suppression of facts was without factual basis, rendering the invocation of the extended period of limitation improper.

Conclusion:
The Tribunal set aside the impugned order, ruling in favor of the appellant. The appeal was allowed with consequential relief, if any, to the appellants. The Tribunal held that the logo is a copyrighted work, not a trademark, and thus, the levy of service tax on the royalty income is not sustainable. The extended period of limitation was also found to be improperly invoked.