2023 (3) TMI 739 - AT - Service Tax

Levy of service tax on royalty paid to their foreign service provider under Reverse Charge Mechanism - intellectual property rights or not - M/s. Borelli Tea Holdings Ltd. granted to the Respondent non-exclusive, non-transferrable licence allowing use of its patents and trade marks for manufacture/production of tea and export thereof. HELD THAT - As it is an admitted fact that the trade mark and patent rights were not registered in India, which have been obtained by the Respondent for use in India from their foreign principal therefore the said rights were not governed by any law for the time being in force. Therefore relying on the decision of M/S. MUNJAL SHOWA LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE ST, DELHI (GURGAON) AND (VICE-VERSA) 2017 (6) TMI 819 - CESTAT CHANDIGARH it is held that the amount paid by the Respondent as royalty or licence fee is not taxable in India. There are no infirmity in the impugned order. Therefore the same is upheld and Appeal filed by the Revenue is dismissed.

Summary

Issues involved:
The issue in this case is whether the Respondent is liable to pay Service Tax on the royalty paid to a foreign service provider under Reverse Charge Mechanism for the intellectual property rights obtained.

Comprehensive Details of the Judgment:

Issue 1: Liability to pay Service Tax on royalty paid to foreign service provider for intellectual property rights:

The Revenue contended that the Respondent is liable to pay Service Tax as the activity undertaken by the Respondent qualifies under Intellectual Property Rights defined under Section 65(55A) of the Finance Act, 1994. However, during the arguments, it was revealed that the trade mark patent was not registered in India. The Tribunal referred to a similar case involving Munjal Showa Ltd., where it was held that for a service to be taxable under Intellectual Property Rights, the rights should be registered with Trademark/Patent authorities. Since the trade mark and patent rights in this case were not registered in India, the Tribunal concluded that the amount paid by the Respondent as royalty or licence fee is not taxable in India. Therefore, the impugned order dropping the demands was upheld, and the Appeal filed by the Revenue was dismissed.

The Tribunal emphasized that for a service to be categorized under Intellectual Property Rights for service tax purposes, the right should have been registered with the trademark/patent authority. Since the rights in question were not recognized as Intellectual Property Rights under any law in force in India, no service tax liability existed. The Tribunal also noted that the agreement predates the introduction of the levy of tax under Intellectual Property Rights services, further supporting the decision that no service tax was payable by the Respondent.

In conclusion, the Tribunal held that the services received by the Respondent were not covered under Intellectual Property Rights services as defined in the Finance Act, 1994, and therefore, no service tax was payable. The decision was based on the absence of registration of the intellectual property rights in India, in line with previous Tribunal decisions and legal provisions.