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2020 (6) TMI 353 - AT - Service TaxIntellectual Property Service - Import of services - reverse charge mechanism (RCM) - inclusion of know how in any other similar intangible property under any law for the time being in force - contention of the Appellant is that there is no law in India for the time being in force which protects know how as an intangible property right and, therefore, the grant of exclusive right to use the know how would not include such a right in the definition of intellectual property right - HELD THAT - This issue was also examined at length by a Bench of the Tribunal Bangalore in ABB LTD VERSUS C.C.E. S.T. -BANGALORE-LTU 2019 (1) TMI 1037 - CESTAT BANGALORE and it was observed that since know how is not recognized as intellectual property right under Indian law, no intellectual property right service can be said to be provided. It is more than apparent that the grant of exclusive right to the Appellant by Mauritius Revlon to use the know how in any plant in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon Products would not fall in the definition of intellectual property right so as to make it taxable under section 65(105) (zzr) of the Finance Act. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of 'know how' under 'intellectual property right' service. 2. Validity of the show cause notice. 3. Jurisdiction and procedural fairness. Detailed Analysis: 1. Classification of 'know how' under 'intellectual property right' service: The primary issue in this case was whether the 'know how' received by the Appellant from Revlon Mauritius falls under the taxable category of 'intellectual property right' service under section 65(105)(zzr) of the Finance Act, 1994. The Commissioner concluded that 'know how' would fall within the taxable category of 'intellectual property right' service, asserting that 'technical know how' is an intellectual property under Indian law, supported by the CBEC Circular dated 17 September 2004. However, the Tribunal disagreed, emphasizing that 'know how' is not specifically mentioned in the definition of 'intellectual property right' under section 65(55a) of the Finance Act, which includes trademarks, designs, patents, or any other similar intangible property, excluding copyright. The Tribunal cited previous decisions, including ABB Ltd. Versus Commissioner of C.EX & S.T., LTU, Bangalore 2019 (24) G.S.T.L.55 (Tri.-Bang.), which held that 'know how' is not recognized as 'intellectual property right' under Indian law and thus cannot be taxed under 'intellectual property right' service. 2. Validity of the show cause notice: The Tribunal found that the show cause notice did not make any reference to the agreements executed between Revlon Mauritius and the Appellant or between Freya Holdings and the Appellant. The notice incorrectly stated that royalty was paid to Revlon Mauritius for the use of the trademark/name, whereas the royalty was actually paid for the license rights to use 'know how' under the First Agreement. The Second Agreement, which granted the exclusive license to use the trademarks, did not provide for any consideration. The Tribunal emphasized that a show cause notice is the foundation of any demand and must clearly state the allegations. The failure to correctly specify the basis of the demand rendered the notice and subsequent demand unsustainable. 3. Jurisdiction and procedural fairness: The Tribunal noted procedural lapses, including the Department's failure to provide the Appellant with the letter dated 30 August 2012, which led to the issuance of the show cause notice. Despite multiple opportunities, the Department could not produce the letter or relevant files, leading the Tribunal to draw an adverse inference. The Tribunal highlighted the importance of procedural fairness and transparency, emphasizing that the Department must maintain and provide all relevant records to ensure a fair adjudication process. Conclusion: The Tribunal concluded that the demand made under 'intellectual property right' service was unsustainable, both substantively and procedurally. The order dated 23 December 2016 passed by the Commissioner was set aside, and the appeal was allowed.
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