2017 (5) TMI 462 - AT - Service Tax

Intellectual property service - consideration for affixing of brand name - whether constitutes Business Auxiliary services of intellectual property services? - the licensee uses the well-known trademark of the appellant on the designated products and, with incorporation of section 65 (105) (zzr) in Finance Act, 1994 to tax the provision of intellectual property service from 10th September 2004, the appellant had taken registration and had been discharging tax liability on the consideration received from the licensees - Held that - It was the contention of Revenue that affixing of brand on the product of oil manufacturing companies amounted to rendering of this service and this view found judicial acceptance. For another field formation of the same tax collection mechanism to take an alternative stand and, that too, for a limited period of time is best described, for want of another phrase, as tax opportunism. That is contrary to the certainty that is the hallmark of tax collection authorised by the sovereign legislature and is reprehensible to the canons of taxation - appeal allowed - decided in favor of appellant.

Issues:
Demand of tax for providing 'business auxiliary service' along with interest and penalty imposed under section 78 of Finance Act, 1994.

Analysis:

1. The dispute revolves around the demand of tax for providing 'business auxiliary service' by allowing the affixing of the appellant's brand-name on products of certain companies. The impugned order held that the appellant provided 'marketing and promotional service of goods belonging to the client' by allowing the affixing of their brand-name on specific products. The appellant had discharged part of the tax liability but contested the categorization of the activity as 'business auxiliary service' and challenged the jurisdiction of the Commissioner of Service Tax.

2. The appellant contended that key submissions were not considered by the original authority, and the impugned order lacked clarity on the reasons for categorizing the activity as 'business auxiliary service.' The agreements with manufacturers and distributors were analyzed to determine the nature of the activity. The appellant argued that tax authorities cannot collect tax under two different taxable heads, especially when the tax liability was accepted after a certain date.

3. The legal aspects of the taxable service, business auxiliary service, intellectual property service, and intellectual property rights were thoroughly examined. Despite various submissions, the Tribunal found that the issue could be resolved based on the facts of the dispute and relevant judicial decisions. The appellant's counsel highlighted the tax liability limited to the period before the introduction of the 'intellectual property service' head.

4. The contracts with manufacturers and distributors specified the terms for using the appellant's brand-name on products, designating the consideration as a 'promotional fee.' The Tribunal analyzed the nature of the activity, considering the approval process and distribution channels involved in promoting and selling the designated products.

5. The Tribunal referred to relevant legal precedents, including the decision in Hero Honda Motors Ltd case, to assess the tax liability on affixing the brand-name on products as an 'intellectual property service.' The issue of tax opportunism and the need for consistency in tax collection mechanisms were highlighted, leading to the setting aside of the impugned order.

6. Ultimately, the Tribunal disagreed with the findings of the adjudicating authority and allowed the appeal, emphasizing the importance of consistency and clarity in tax assessments. The judgment was pronounced on 07/04/2017.

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