2019 (1) TMI 1370 - AT - Service Tax

Reverse charge mechanism - Intellectual property service - scope of the levy - section 66A of Finance Act 1994 - Held that - Doubtlessly section 66A of Finance Act 1994 deems the recipient of a taxable service to be the provider to fasten the obligation to discharge tax. Undoubtedly the taxable services that are not covered by the first two of the groupings in rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules 2006 deems service to have been brought within India when the recipient is located in India. It is thus amply clear that this is a residuary clubbing that does not specify the specific services. At the same time it cannot be ignored that the said Rules are notified inter alia in exercise of powers under section 93 of Finance Act 1994 which enables the Central Government to exempt taxable services from the levy. Consequently such of those transactions that are not amenable to inclusion as provision of services from outside to India are to be considered as exempt. In the decision in re Catapro Technologies Ltd 2016 (12) TMI 100 - CESTAT MUMBAI the essentiality of coverage under the Indian laws for intellectual property to be acknowledged has been articulated. The nature of the intellectual property and its enforceability in the present dispute does not find a place in the records commencing with the show cause notice. The crystalisation of the tax liability on the appellant does not have the authority of law - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to tax liability under section 66A of Finance Act, 1994 for 'intellectual property service'; applicability of circulars; dispute over assessable value; interpretation of taxable service definition; liability under section 66A for services provided from outside India; validity of tax liability imposition; enforcement of intellectual property rights; impact of amalgamation scheme approval on cause title alteration.

Analysis:
The appeal challenged the tax liability of ?76,78,126 under section 66A of Finance Act, 1994 for 'intellectual property service' provided by M/s HYL Technologies based in Mexico to the appellant. The primary contention was the restrictive scope of levy based on circulars issued by the Central Board of Excise & Customs. The appellant argued that the tax had been deposited on some payments to the overseas entity and that the assessable value should exclude amounts representing goods' value. The adjudicating authority's order was criticized for disregarding these submissions, leading to a deficient decision.

The Tribunal referred to Catapro Technologies case, emphasizing that tax liability arises concerning intellectual property services provided by the holder of intellectual property rights enforceable in India. The definition of taxable service under section 65(55a) of Finance Act, 1994 excludes copyright but includes intangible property like trademarks, designs, and patents. The provider must hold intellectual property rights enforceable against all entities, not just the recipient, for tax liability to apply.

Regarding services provided from outside India, the lower authority applied section 66A deeming the recipient as the provider for tax purposes. However, the Tribunal noted that the law requires intellectual property rights enforceability in India, which was not demonstrated in the case records. The decision highlighted the legal acknowledgment of intellectual property rights' possession under Indian laws for tax liability imposition.

The Tribunal concluded that the tax liability on the appellant lacked legal authority, setting aside the impugned order. The approval of the scheme of amalgamation resulted in the alteration of cause title from M/s Welspun Maxsteel Ltd to M/s JSW Salav (Steel) Ltd. The judgment emphasized the necessity of legal compliance and proper interpretation of tax laws concerning intellectual property services and cross-border transactions.