2024 (10) TMI 980 - AT - Service Tax

Levy of service tax - Intellectual Property Right Services - income received from the transfer of goodwill - Whether goodwill is covered in the definition of IPR Service as per the Finance Act and that is this same as trademark as has been held by Original Authority? - Manpower Recruitment or Supply Agency Service - extended period of limitation - penalty - HELD THAT - The donor, a legal practitioner has institutionalized the Goodwill of his profession/business associated with the name of his business with all associated rights including intellectual property rights in favour of his family members. The words Goodwill in name used in addition to other rights are patently clear to show that Goodwill in name and Goodwill in Business were intended to be two different things though both are intangible in nature. Name is the brand/trade mark, the intellectual property whereas Business is the reputation. As brought to notice that the Goodwill Valuation Report also reveals that the valuation was of the goodwill of Remfry Sagar as a going concern and it was not the value of a trade mark, Remfry Sagar - the valuation took into account is the long standing of the Firm, the professional manner in which the Firm was run and handled its clients and the probability of their returning to the Firm. It is clear that valuation was for an intangible property but being different from the Intellectual Property( Trade Mark). The perusal of the documents makes it patently clear that the appellant company has not simply lent the name Remfry Sagar to the partnership firm of the legal practitioners/Consultants but it also maintained complete hold on the conduct of business to ensure the Goodwill therein associated with name Remfry Sagar . It stands established that Dr. Vidya Sagar being 76 years age without any Lawyer as his legal heir, in the first place separated the Goodwill of 173 years old practice and profession from his proprietorship Firm and institutionalized the same by way of gift. The said Goodwill of the practice and profession including all rights, which was valued at 45,00,00,000.00 as on 31.3.2001, was gifted to the Appellant, while the other assets of the proprietorship Firm were sold to the Appellant by way of a separate arrangements. A few of the legal practitioner working in the proprietorship Firm of Dr. Vidya Sagar were brought in as partners in the Law Firm which was formed to carry on the Continued Practice of Dr. Vidya Sagar without break, while other legal practitioners were absorbed as consultants in the Law Firm. Non-technical staff of the proprietorship Firm of Dr. Vidya Sagar was absorbed by the Appellant. Contemporaneously, the said institutionalized Goodwill in the practice and profession of attorneys-at-law was licensed by the owners/donors to the Law Firm by way of the License Agreement to carry on the continued practice. On application of principle of ejusdem generis , it is held that the only interpretation which can be arrived from the words any other similar intangible property is that other intangible properties which come under the Cinematographic Act,1952 ,The Biological Diversity Act,2002 , The Seeds Act,1966 , Protection of Plants Varieties and Farmers Rights Act,2001 , The Geographical Indications of Goods(R P) Act,1999 , The Information Technology Act,2000, etc. which are recognised under Intellectual Property Law in India. As already held above that Goodwill is not recognised under any law, same cannot be held as similar intangible property as trademarks, designs patents. The License Agreement read with the partnership deed of the Law Firm, fundamentally requires the continuity of 173 years old practice of Dr. Vidya Sagar wherein the control and benefits lie with the Appellant Company (legal heirs of Dr. Vidya Sagar). Only a 'Goodwill' licensor would be in position to control and reap benefits to this extent as 'Goodwill' is directly related to business or profession, which may or may not have a 'Trademark'. Hence we hold that the Goodwill transferred by appellant Company is the Goodwill of Business which is an intangible property but it has wrongly been held as Intellectual Property (Trade Mark). Service Tax demand based on said presumption is therefore liable to be set aside. Manpower Recruitment or Supply Agency Service - HELD THAT - BSS are essentially the services which are provided by the service provider to service recipient in the form of specific support. The essence of 'business support service' is to outsource a specified work to another person in lieu of compensation. On the contrary, 'manpower recruitment or supply agency' service is limited to supply of manpower that too by Manpower Supply Agency to another - in the instant case, the Appellant is completely responsible to the Law Firm for all bad quality of work delivered using Appellant's employees and Appellant's equipment. Top of that appellant is not a Man Power Supply Agency. Hence the order under challenge has wrongly confirmed the demand of Service Tax under Manpower supply service. Invocation of extended period of limitation - HELD THAT - There is no denial to the fact that the appellant was regularly paying tax vis- -vis the taxable activity of providing business support service and was filing the regular returns. Even Nil returns were being filed vis- -vis the license fee and other income received. This acknowledgement is sufficient to hold that there is no act of suppression, as alleged, has been committed by the appellant - extended period has wrongly been invoked while issuing the SCN. Hence it is held to be barred by findings. Penalty - HELD THAT - In the case of Hindustan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT it is held that Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law and was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation - in the present case, the party are not liable for any penal action and so the penal proceedings initiated in the SCN merits to be dropped. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:

1. Whether the income received from the transfer of goodwill is taxable under "Intellectual Property Right Services."
2. Whether the demand for service tax under "Manpower Recruitment or Supply Agency Service" is justified.
3. Whether the extended period of limitation for issuing the Show Cause Notice was correctly invoked.

Issue-wise Detailed Analysis:

1. Taxability of Income from Goodwill Transfer:

The primary issue was whether the income received by the appellant from transferring the goodwill of the law firm "Remfry & Sagar" is taxable under "Intellectual Property Right Services" as per the Finance Act, 1994. The appellant argued that the goodwill transferred is distinct from a trademark and does not fall under the definition of Intellectual Property Right (IPR) services. The tribunal examined the Gift Deed and License Agreement, which indicated that the goodwill was related to the business's reputation and continuity, not merely the name or trademark. The tribunal referenced legal precedents and definitions, concluding that goodwill is an intangible asset associated with business reputation and not an intellectual property right. Therefore, the income from the goodwill transfer was not taxable under IPR services.

2. Demand for Service Tax under "Manpower Recruitment or Supply Agency Service":

The appellant contested the demand for service tax under "Manpower Recruitment or Supply Agency Service," asserting that the services provided were "Business Support Services" (BSS). The tribunal noted that BSS involves outsourcing specific work, whereas manpower supply involves providing personnel. The appellant provided secretarial, accounting, and support services using its own resources and was responsible for the quality of work, distinguishing it from manpower supply. The tribunal found that the appellant was not a manpower supply agency and held that the demand for service tax under this category was incorrect.

3. Invocation of Extended Period of Limitation:

The tribunal addressed whether the extended period for issuing the Show Cause Notice was justified. The appellant had been regularly filing service tax returns, including 'Nil' returns for license fees and other income. The tribunal found no evidence of suppression or misrepresentation by the appellant. It held that the Show Cause Notice was based on presumptions and a misinterpretation of the agreements. Citing legal precedents, the tribunal concluded that the extended period was wrongly invoked, rendering the notice time-barred.

Conclusion:

The tribunal ruled in favor of the appellant, setting aside the order under challenge. It determined that the income from goodwill transfer was not taxable under IPR services, the demand for service tax under manpower supply was incorrect, and the extended period for the Show Cause Notice was unjustified. Consequently, the appeal was allowed, and no penalties were imposed.