2021 (10) TMI 799 - AAR - GST

Scope of Advance Ruling Application - Classification of supply - supply of goods or supply or services - Activity of transfer of registered trademarks by Novartis AG - applicability of reverse charge mechanism in terms of entry no. 1 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 or entry no. 17 (i) of Notification No. 8/2017-lntegrated Tax (Rate) dated 28.06.2017 (as amended)? - HELD THAT - As per section 95 (a) there are two conditions to be fulfilled for making an advance ruling application firstly, the question asked should be in relation to supply undertaken by the applicant and secondly the question should be in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. In the subject case, the first condition mentioned above is not satisfied in as much as it is NAG, Switzerland which is undertaking the supply and not the applicant - with respect to the second condition for the supply to be undertaken or proposed to be undertaken we observe that the Deed of Assignment is dated 30th November, 2019, and the Effective Date as stated in the Deed is 10 th December 2019. The application has been filed on 16 th January 2020. Thus, on the date on the filing of the subject application the subject supply was already completed and was neither being undertaken, nor was proposed to be undertaken.

Summary

Issues Involved:
1. Classification of the transfer of registered trademarks as 'supply of goods' or 'supply of services.'
2. Liability to discharge GST under reverse charge mechanism if classified as a supply of service.
3. Classification under entry no. 17(i) of Notification No. 8/2017-Integrated Tax (Rate) if classified as a supply of service.

Detailed Analysis:

1. Classification of the Transfer of Registered Trademarks:
The applicant, M/s. USV Private Limited, sought an advance ruling on whether the transfer of trademarks by Novartis AG (NAG) to the applicant is a 'supply of goods' or 'supply of services' under the CGST and IGST Acts. The applicant argued that intellectual property rights (IPR), including trademarks, should be treated as 'goods' based on various legal precedents and definitions under the General Clauses Act, 1897, and the CGST Act, 2017. They cited several cases, including the Hon’ble Supreme Court’s decision in Vikas Sales Corporation and the Hon’ble Bombay High Court’s decision in Commissioner of ST Vs Duke and Sons, which classified trademarks as 'goods.' The applicant also referenced Entry 1(a) of Schedule II to the CGST Act, which states that 'any transfer of title in goods is a supply of goods.'

The concerned officer supported this view, stating that intellectual property rights fall under the definition of 'movable property' and thus under 'goods' as per the CGST Act. The officer also distinguished between 'assignment' (permanent transfer) and 'license' (temporary transfer) of IPR, concluding that the permanent transfer of trademarks should be treated as a supply of goods.

2. Liability to Discharge GST Under Reverse Charge Mechanism:
The applicant contended that if the transfer is classified as a supply of service, then as per Entry No. 1 of Notification No. 10/2017-Integrated Tax (Rate), they would be liable to discharge GST under the reverse charge mechanism. However, they argued that since the transaction is a supply of goods, this mechanism should not apply.

The concerned officer did not specifically address this issue, as they concluded that the transfer is a supply of goods.

3. Classification Under Entry No. 17(i) of Notification No. 8/2017-Integrated Tax (Rate):
The applicant argued that mere mention of 'permanent transfer' in the services rate notification does not determine the classification of the transaction. They emphasized that the permanent transfer of IPR should be treated as a supply of goods, not services, and referenced Entry No. 243 of Schedule II of Notification No. 1/2017-Integrated Tax (Rate), which classifies permanent transfer of IPR as goods.

The concerned officer noted that the heading of 9973 in the classification of services pertains to leasing or rental services, not permanent transfers, supporting the view that the permanent transfer of trademarks should be classified as a supply of goods.

Judgment:
The Authority for Advance Ruling (AAR) rejected the application as non-maintainable under Section 95 of the CGST Act, 2017. The reasons were twofold: the applicant raised questions as a recipient of services, and the questions pertained to a past and completed supply as of the application date, not a supply being undertaken or proposed to be undertaken. Consequently, the second and third questions were not discussed.

Conclusion:
The application was rejected on procedural grounds, specifically for not meeting the conditions of Section 95 of the CGST Act, 2017. The AAR did not provide a substantive ruling on the classification of the transfer of trademarks or the associated GST liabilities.