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2013 (8) TMI 119 - AT - Service TaxIntellectual Property Rights Services Assessee entered into agreement with the M/s. Purolite, whereby M/s. Purolite agreed to irrevocably transfer to Thermax all claims, rights and interests necessary to use Purolite Technology and Information and Thermax shall jointly co-own with Purolite the Purolite Technology and Information in perpetuity and not subject to any geographical restrictions or customer restrictions. Upon the technology transfer, Thermax became co-owner in the Purolite Techology and Information and was entitled to use, assign, sell, license, transfer or convey their respective interests in the Purolite technology and information - Transfer of technology from Purolite USA to Thermax Ltd. India amounts to receipt of service by Thermax and the service so received merited classification under intellectual property rights service as defined in Section 65(55a) and 65 (55b) read with Section 65(105) (zzr) of the Finance Act, 1994 Held that - As per Section 65 (55a) intellectual property right means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright - To constitute a intellectual property it should be either a trade mark, design patent or any other similar intangible property under any law for the time being in force in India. As per the decision of the US District Court of Pennsylvania, the information obtained by Thermax in contravention of the US law was relating to Purolit s trade secrets and/or confidential information - It is well settled that there is no law relating to the trade secrets or confidential information in India. Therefore, the trade secrets obtained by Thermax from Purolite, USA is not an intellectual property right as defined in Section 65 (55a). Thermax became a co-owner of the intellectual property right and was entitled to use, assign, sell, license, transfer or convey their interests in the in the said trade secret/information. In other words, it was not a temporary transfer of an intellectual property right or a permission to use or enjoy the intellectual property right. The transaction involved ownership of the intellectual property right and therefore, the transaction does not satisfy the requirement of Section 65 (55b) - In this regard, the circular issued on 17.09.2004 by the Board at the time of introduction of IPR service is relevant and the same states that IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services. Decision of Hon ble Tribunal in the case of Royal Western India Turf Club Ltd. 2012 (11) TMI 526 - CESTAT, MUMBAI is squarely applicable in the present case , wherein it has been held demand for service tax has been made under the category of Intellectual Property Right Services , neither the show-cause notices nor the orders relating thereto give a clear proposal or finding as to what is the intellectual property rights involved in the transactions, i.e., whether it is a patent, copy rights, trade mark or design or any other category of intellectual property rights. When service tax is confirmed under the taxable service category of Intellectual Property Right Services, the order confirming the demand should clearly classify the transaction under one or more of the Intellectual Property Rights which are covered under Intellectual Property Right Services law. The Boards Circular issued on 17.09.2004 in this regard makes it abundantly clear that the Intellectual Property Right Services covered under the service tax laws should be in respect of such services in respect of which laws have been made in India and such laws should cover the Intellectual Property Right Services involved and only in such a situation, demand for service tax can be raised whenever there is a transfer of Intellectual Property Rights by the holder of the Intellectual Property Right to the person who receives or uses the Intellectual Property Rights. In the impugned orders we do not find any such findings by the authorities Relying upon the above decision appeal in the present case allowed Decided in favor of Assessee.
Issues Involved:
1. Classification of the transaction under "intellectual property rights service." 2. Applicability of Indian law on trade secrets/confidential information. 3. Nature of the transfer of intellectual property rights. 4. Taxability of compensation paid in an out-of-court settlement. Issue-wise Detailed Analysis: 1. Classification of the Transaction under "Intellectual Property Rights Service": The department classified the transaction as "intellectual property rights service" under Section 65(55a) and 65(55b) read with Section 65(105)(zzr) of the Finance Act, 1994. They issued a show-cause notice to the appellant, proposing to classify the service received under this category and demanding service tax amounting to Rs.18,05,50,717/-. The appellant contested this classification, arguing that the intellectual property right acquired from Purolite USA was in the nature of trade secrets/confidential information, which is not recognized as an intellectual property right under Indian law. 2. Applicability of Indian Law on Trade Secrets/Confidential Information: The appellant argued that under Indian law, trade secrets or confidential information are not considered intellectual property rights. They cited the absence of any legislation passed by the Indian Parliament in this regard. The appellant relied on the decision of the United States District Court for the Eastern District of Pennsylvania, which classified the information as trade secrets/confidential information. The court's decision was used to argue that the department cannot take a different stand about the nature of the right involved in the transaction. 3. Nature of the Transfer of Intellectual Property Rights: The agreement between the appellant and Purolite USA resulted in the appellant becoming a co-owner of the Purolite Technology and Information. The appellant argued that this was not a temporary transfer or a permission to use the intellectual property right but a permanent transfer, making them co-owners entitled to use, assign, sell, license, transfer, or convey their interests. The appellant supported their argument with definitions of co-ownership from various legal sources, including Salmond on Jurisprudence and Black's Law Dictionary. 4. Taxability of Compensation Paid in an Out-of-Court Settlement: The appellant contended that the payment made to Purolite USA was a compensation for an out-of-court settlement and not a consideration for any service rendered. They cited a UK court decision where a similar compensation payment was treated as outside the scope of VAT. They also referred to a Tribunal decision in the case of Ratnatraya Heat Exchangers Ltd., where compensation received from an insurance company for damages was not treated as consideration for sale. Tribunal's Findings and Conclusions: 1. Definition of Intellectual Property Right and Service: The Tribunal examined the definitions under Section 65(55a), 65(55b), and 65(105)(zzr) of the Finance Act, 1994. It concluded that trade secrets/confidential information do not qualify as intellectual property rights under Indian law. The Tribunal noted that there is no legislation in India governing trade secrets/confidential information, and therefore, the rights obtained by the appellant do not constitute intellectual property rights as defined in the law. 2. Permanent Transfer of Intellectual Property Right: The Tribunal found that the agreement resulted in the appellant becoming a co-owner of the intellectual property right, which implies a permanent transfer. The Tribunal referred to a Board circular stating that a permanent transfer of intellectual property right does not amount to rendering of service and is not subject to service tax. 3. Lack of Specific Classification in Show-Cause Notice: The Tribunal observed that neither the show-cause notice nor the impugned order specified the type of intellectual property acquired by the appellant. It cited a previous Tribunal decision in the case of Royal Western India Turf Club Ltd., which required clear classification of the intellectual property right involved in the transaction. 4. Out-of-Court Settlement: The Tribunal considered the UK Tribunal decision cited by the appellant, which held that payment received as an out-of-court settlement would not amount to the supply of any service. Applying this ratio, the Tribunal concluded that the transaction in question cannot be considered a taxable service. Conclusion: The Tribunal held that the impugned order was not sustainable in law. It set aside the order and allowed the appeal with consequential relief, if any, in accordance with the law. The operative part of the order was pronounced in court.
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