2017 (6) TMI 819 - AT - Service Tax

Valuation - royalty - includibility - Revenue is of the view that the said transfer of technical know-how is covered under Intellectual Property Right services - reverse charge mechanism - whether the royalty paid by the appellant-assessee under Industrial Property Right agreement is liable to service tax under Intellectual Property Rights service or not? - Held that - to tax under service tax, under Intellectual Property Rights, such rights should be registered with Trademark/ Patent authorities. It is a fact on record that such trade mark is not registered in India - services received by the appellant-assessee are not covered under IPR service, under Section 65 (105) (zzr) of the Finance Act, 1994. Therefore, no service tax is payable by the appellant-assessee. Levy of service tax - IPR service - Held that - the agreement is dated 11.03.2002 whereas the levy of tax under IPR service has come into force on 10.09.2004. As the agreement is executed on 11.03.2002, prior to introduction of IPR Service, the demand of service tax is not sustainable. Appeal allowed - decided in favor of assessee.

Summary

Issues:
Appeal against order-in-original regarding service tax liability on royalty payments under Intellectual Property Rights services.

Analysis:
1. Facts of the Case: The appellant was registered with the service tax department for various services and engaged in manufacturing. A contract with a Japanese company involved the transfer of Industrial Property Rights to the appellant, leading to royalty payments. The Revenue claimed the transfer was under Intellectual Property Rights services, thus subject to service tax.

2. Contentions of the Parties: The appellant argued that the royalty payments did not fall under Intellectual Property Rights services as per the relevant sections of the Finance Act, citing precedents. The Revenue, however, relied on a CBEC Circular to support their position.

3. Legal Interpretation: The tribunal analyzed the definition of Intellectual Property Rights under Section 65 of the Act, emphasizing the requirement for registration of such rights in India for taxation. The tribunal noted that the Design, Trademark, Symbol, and Brand Service were not registered in India, making them exempt from service tax under Intellectual Property Rights services.

4. Precedent and Decision: Referring to previous tribunal decisions, the judgment highlighted that for a service to be taxable under Intellectual Property Rights, the rights should be registered with the trademark/patent authority. As the rights in question were not recognized under Indian law, the appellant was not liable to pay service tax.

5. Extended Period of Limitation: The tribunal held that the extended period of limitation was not applicable as the agreement predated the introduction of the levy on IPR services, aligning with previous decisions on the timing of service tax liability concerning the date of service provision.

6. Final Decision: Consequently, the tribunal dismissed the Revenue's appeal and allowed the appellant's appeal, setting aside the demand for service tax against the appellant. The judgment was pronounced on 15.06.2017 by the tribunal members, Mr. Ashok Jindal and Mr. Devender Singh.

This detailed analysis showcases the tribunal's thorough consideration of the legal provisions, arguments presented by both parties, relevant precedents, and the ultimate decision regarding the service tax liability on royalty payments under Intellectual Property Rights services.