2020 (11) TMI 391 - AT - Service Tax

Intellectual Property Rights Service - Reverse Charge Mechanism - payment made to Fosters Australia towards permanent transfer of Fosters trademark and brand under the Deed of Assignment - transfer of right to use - demand of service tax - extended period of limitation - HELD THAT - After going through the contents of Deed of Assignment, it is found that the intention of the parties while executing the Deed of Assignment is the permanent exclusive and irrevocable transfer of trademark as well as Intellectual Property Rights in favour of the appellant. After seeing the clauses of the Deed of Assignment, it is found that the impugned order has wrongly interpreted the terms of the Deed to mean that there is only grant of right to use the trademark and no permanent transfer of trademark to the appellant in India. The learned Commissioner has ignored the substance of the clauses and has picked a part of the clause to suit his purpose and used the same to hold that there is no assignment of the trademark and the brand IP, but there is only a transfer of right to use. It is found that besides the Deed of Assignment clearly showing that there is an exclusive perpetual and irrevocable transfer of trademark and Intellectual Property Rights in favour of the appellant from the other corroborative evidence produced by the appellant which has not been considered by the Commissioner at all. The appellant has also produced on record the Income Tax Assessment Order for the financial year 2006-2007 wherein the Commissioner has recorded the purchase of trademark by the appellant - further, the appellants have got registered in his favour Foster s trademark as a proprietor under the Trademark Act, 1999. The assignment of trademark and the IPR amounts to permanent transfer and no service tax is applicable on permanent transfer of IP Rights by Foster s to the appellant. Extended period of Limitation - HELD THAT - The Department was fully aware of the Assignment Deed executed by the appellant with Foster s Australia - Further, the transfer of Deed of Assignment was disclosed by the appellant in the Books of Accounts and with the Income Tax Authorities and was also registered in their name as proprietor under the Trademark Act, 1999. All these facts clearly show that the appellant has not suppressed any material facts from the Department and the Department was very much aware of the said transaction, hence alleging suppression on the part of the appellant is not sustainable and we hold that the entire demand is also barred by limitation. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the appellant is required to pay service tax on a reverse charge basis for the payment made to Fosters Australia towards the permanent transfer of Fosters trademark and brand under the Deed of Assignment.
2. Whether the extended period of limitation can be invoked for issuing the show-cause notice.
3. Whether simultaneous penalties under Section 76 and 78 of the Finance Act, 1994 can be imposed.

Detailed Analysis:

1. Service Tax on Permanent Transfer of Trademark and Brand:
The core issue was whether the appellant is liable to pay service tax for the payment made to Fosters Australia for the permanent transfer of trademark and brand under the Deed of Assignment. The appellant argued that the transaction was a permanent transfer, not liable to service tax, as only temporary transfers of Intellectual Property Rights (IPR) were taxable post the Finance Act, 2005 amendment. The appellant cited various precedents, including Tata Consultancy Services Ltd. Vs. Commissioner of Service Tax, Mumbai, and ABB Ltd. Vs. Commissioner of C.Ex. & S.T., LTU, Bangalore, to support their claim that permanent transfers are not taxable.

The Tribunal examined the relevant provisions of the Finance Act, 1994, particularly Sections 65(55a), 65(55b), and 65(105)(zzr), which define 'Intellectual Property Right', 'Intellectual Property Service', and 'Taxable Service' respectively. It was noted that for a service to be taxable under IPR, it must involve the temporary transfer or permission to use an IPR, which was not the case here, as the Deed of Assignment indicated a permanent, exclusive, and irrevocable transfer.

The Tribunal found that the Commissioner had misinterpreted the Deed of Assignment, which clearly showed a permanent transfer of trademark and IPR. Supporting evidence included the Income Tax Assessment Order recognizing the purchase of the trademark and the registration of the trademark under the appellant's name. The Tribunal also referred to CBEC Circular F. No. B2/8/2004-TRU, which clarified that permanent transfers of IPR do not amount to rendering of service and thus are not taxable.

2. Extended Period of Limitation:
The appellant contended that the show-cause notice issued on 21/04/2011 was barred by limitation, as the Deed of Assignment was executed on 12/09/2006, and the Department had already audited the appellant and issued a separate show-cause notice for an overlapping period. The Tribunal agreed, noting that the Department was fully aware of the transaction, which was disclosed in the appellant's books of accounts and with the Income Tax authorities. Thus, there was no suppression of facts, and invoking the extended period of limitation was not justified.

3. Simultaneous Penalties under Section 76 and 78:
The appellant argued that simultaneous penalties under Sections 76 and 78 could not be imposed, citing the Punjab & Haryana High Court's decisions in Commr. of Central Excise Vs. Pannu Property Dealers, Ludhiana, and Commissioner of Central Excise Vs. First Flight Courier Ltd. The Tribunal, however, did not delve into this issue in detail, as it had already decided in favor of the appellant on the primary issues of service tax liability and limitation.

Conclusion:
The Tribunal concluded that the assignment of the trademark and IPR amounted to a permanent transfer, not subject to service tax. It also held that the entire demand was barred by limitation due to the Department's prior knowledge of the transaction. Consequently, the appeal was allowed, and the impugned order was set aside with consequential relief to the appellant.

← Previous Next →