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2019 (12) TMI 184 - AT - Service TaxIntellectual Property Service - assessee-appellant is supplying parent seeds under limited Royalty bearing licence - Whether there is any liability to Service Tax under Intellectual Property Service on the consideration received as Royalty? - extended period of limitation - HELD THAT - Section 23 of the Protection of Plant Varieties and Farmers Rights Act, 2001 prescribes the procedure for registration under the Act and the issuance of certificate of registration is prescribed under Section 24 ibid. Further, Section 28 mandates the conferring of Right. Section 23 prescribes the detailed procedure requiring the Registrar to first satisfy itself with the requirements and thereafter get the application examined and only thereafter he shall forward such application with relevant documents to the authority under the Act. Finally, it is the authority which issues directions to the Registrar or rejects such application under the Act. Once the application for registration of a variety is approved i.e., accepted, only then the same is registered and the certificate of registration is issued in terms of Section 24 and only when such certificate of registration is issued under the Act, it shall confer an exclusive right in terms of Section 28 ibid. Mere filing of application would not lead an applicant anywhere and such applicant would not automatically become owner/holder of Right under the Act unless such right is conferred in terms of Section 28 after due process as prescribed under the said Act. Hence, one of the objections of the Revenue that mere filing is sufficient cannot survive. Any agreement between two parties inter se is civil in nature, which only binds the parties thereto to the terms or contents therein. Such agreements could also be financial in nature whereby consideration is being passed on, however, subject to certain acts/omissions/conditions or terms in such agreements. So, any failure on the part of one of the parties to such an agreement would only lead to a civil dispute, maybe for specific performance or enforcement or recovery, etc. - Such agreements, therefore, are binding only on the parties who bind themselves with the terms and conditions therein and no outsider would ever have or be influenced by any of the terms therein. As regards, the requirements of law, the governing statute is the PPV Act, according to which the Right flows from the moment the registration is granted. Once the application is filed, procedure follows, which is not just an empty formality. The governing statute thus confers and recognizes an applicant s right, which thus satisfies the conditions in Section 65 (55a) read with Circular No. 80/10/2004, i.e., the applicant becomes holder/owner of Intellectual Property Right prescribed under the relevant Act i.e., the PPV Act, which for the time being is in force - thus, demand is not sustainable. Extended period of limitation - HELD THAT - In the case on hand, admittedly, the appellant was not having the privileges of Right during most part of the disputed period and therefore, the requirements of charging Section read with the Board Circular No. 80/10/2004 remain largely unsatisfied. Hence, we do not entertain the Revenue s plea and have to hold that the demand cannot sustain beyond the normal period - also, Ld. Adjudicating Authority has observed at paragraph 10 of the impugned order that the consideration was shown as Royalty in the Books of Accounts of the appellant. So, this was not something that was suppressed or camouflaged so as to give the colour of fraud, suppression, mis-representation, etc., for invoking the larger period of limitation - extended period not invocable. The appeal is allowed both on merits as well as limitation.
Issues Involved:
1. Whether the appellant was liable to pay Service Tax under Intellectual Property Service on the consideration received as Royalty. 2. Whether the appellant was the holder of Intellectual Property Rights (IPR) during the disputed period. 3. Whether the extended period of limitation could be invoked for the demand of Service Tax. 4. Whether penalties under Sections 76, 77, or 78 of the Finance Act, 1994, and interest under Section 75 could be imposed. Detailed Analysis: 1. Liability to Pay Service Tax under Intellectual Property Service: The primary issue was whether the appellant was liable to pay Service Tax on the Royalty received for supplying parent seeds. The appellant contended that they did not hold any Intellectual Property Rights (IPR) over the parent seeds during the disputed period, as the seeds were not registered under the Protection of Plant Varieties and Farmers’ Rights Act, 2001 (PPV Act). The Revenue argued that the appellant was providing Intellectual Property Services by permitting the use of IPR for consideration in the form of Royalty, which was taxable under Section 65 (105) (zzr) of the Finance Act, 1994. The Tribunal held that the mere filing of an application for registration does not confer IPR; the right is conferred only upon registration. Therefore, the appellant did not hold IPR during the disputed period, and the demand for Service Tax was not sustainable. 2. Holder of Intellectual Property Rights: The appellant argued that they were not the holder of IPR as the parent seeds were not registered under the PPV Act during the disputed period. The Revenue contended that the appellant was the absolute owner and holder of IPR by virtue of the Licence Agreements and that the recognition of rights under the PPV Act was sufficient. The Tribunal clarified that under the PPV Act, the right is conferred only upon registration after due process. Therefore, the appellant was not the holder of IPR during the disputed period, and the agreements between the appellant and its customers could not fasten tax liability. 3. Extended Period of Limitation: The Show Cause Notice dated 19.10.2013 was issued for the period from 01.04.2007 to 31.03.2012. The appellant contended that the demand was barred by limitation as the notice was issued after more than 18 months from the filing of the ST-3 return for the period ending March 2012. The Tribunal noted that the consideration received as Royalty was reflected in the appellant’s Books of Accounts, and there was no suppression of facts. Therefore, the extended period of limitation could not be invoked, and the demand beyond the normal period was unsustainable. 4. Imposition of Penalties and Interest: The appellant argued that there was no suppression of facts and that they were under a bona fide belief that there was no liability to Service Tax. The Tribunal observed that the issues involved interpretation of statute and complex legal provisions. Therefore, the imposition of penalties under Sections 76, 77, or 78, and interest under Section 75 of the Finance Act, 1994, was not justified. The Tribunal also noted that the appellant was entitled to waiver of penalties under Section 80 of the Finance Act, 1994, as they had shown reasonable cause for any failures. Conclusion: The Tribunal allowed the appeal both on merits and limitation grounds. The demand for Service Tax was set aside, and the appellant was granted consequential benefits as per law.
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