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TMI Blog2016 (7) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... , designs, softwares, catalogues, technical assistance/training documents/symbol numbering system etc., done under respective agreements which are on the record of these proceedings are not covered under the definition of 'Intellectual Property Right' as given in Section 65(55a) of Finance Act 1994 and consequently subject transfers of 'right to intellectual property', if any, covered by those transactions do not come within the definition of 'Intellectual Property Service' given in Section 65(55b) of the Finance Act, 1994 and the service(s) if any, provided by the foreign companies by way of transfer of subject matter(s) under respective agreements to the appellants cannot be covered under the taxable service of 'Intellectual Property Service' as defined under Section 65(105)(zzr) of the Finance Act, 1994 'Intellectual Property Right' as given in Section 65(55a) of Finance Act 1994 and consequently subject transfers of 'right to intellectual property', if any, covered by those transactions do not come within the definition of 'Intellectual Property Service' given in Section 65(55b) of the Finance Act, 1994 and the service(s) if any, provided by the foreign companies by way of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are group companies of ABB: (i) M/s. ABB Stoz-Kontakt GmbH Eppelheimer Strate Licence Agreement concerning the manufacture of MCB s. (ii) M/s. ABB Sace S.p.A, Low Voltage Brakers Division, - License Agreement concerning the manufacture of Low Voltage Air circuit Breakers (ACB) EMAX E1. (iii) M/s. ABB Jumet, Belgium License Agreement concerning the manufacture of capacitor units designed to operate at voltages upto and including 690V. (iv) M/s. ABB Technologies Ltd. License Agreement concerning the transfer of technology for standardized solutions for Advanced Power System Management. (v) M/s. ABB OY Drives, Finland Helsinki License Agreement concerning the production of ACS 550 and ACH 550 Frequency converters. (c) In terms of the above mentioned agreements, the Companies in question would provide to the appellants documents (etc.) related to general data relating to Technology, Tools, and jigs, Special machines and equipment, Quality Control and Quality Assurance to enable the appellants to manufacture, sale and marketing of such goods as specified in the agreement(s). The companies would place at the disposal of appellants the documents etc li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt issued a show-cause notice dated 22.09.2006 demanding service tax under the category of Intellectual Property Service. This demand in show-cause notice was dropped by the Additional Commissioner under Order-in-Original No. 19/2007 dated 30.03.2007 saying that know-how is not covered under any Indian Law for the time being in force following Circular 80/04-ST dated 17.09.2004 and the Tribunal decision in the case of M/s. IFFCO V. CCE reported in [2007 (5) S.T.R. 281 (Tri.-Del.)]. For these facts the Commissioner, LTU invoked provisions under Section 84 of the Central Excise Act and issued show-cause notice dated 07.09.2007 for taxing the services under Intellectual Property Service and demanded service tax of ₹ 39,98,975/- (Rupees Thirty Nine Lakhs Ninety Eight Thousand Nine Hundred and Seventy Five only) along with interest and for imposition of penalties. Commissioner against the show-cause notice passed the Order-in-Original No. 31/2007 dated 10.04.2008 confirming the demand of service tax along with interest and imposed penalties. 2.3. Against the above order dated 10.04.2008 appeal was allowed by the Tribunal vide Final Order No. 453/2010 dated 11.02.2010 on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time being in force implies such laws as are applicable in India, 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. 9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a holder of intellectual property right so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs 9.3 In case a transfer or use of an IPR attracts cess under Section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable. (refer notification No.17/2004-ST, dated 10.09.2004). [Emphasis supplied] (v) Know how is not recognized as an Intellectual Property and is not protected under any Indian law for the time being in force. In fact, Know how is the undisclosed information cited by the aforementioned departmental clarification dated 10.9.2004, as example of intellectual proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the subject of reasonable efforts to maintain its secrecy. Trade secrets are, however, not protected by law in the same manner as trademarks or patents. ... [Emphasis Supplied] (vii) The above view finds support from the TRIPS Agreement where in Section 7 relating to Protection of Undisclosed Information, the measures to protect the same are set out. (viii) Further, in support of the view that the transfer of know-how cannot be considered rendering of service, reliance is placed on the following cases: (i) OEN India Limited v. CCE Cochin, 2008-TIOL-1589-CESTAT Bangalore (ii) CST, Faridabad v. G.E.C Avery Ltd. 2008 (10) STR 297 (Tri. - Del) (iii) CCE, Daman v. Supreme Treaves (P) Ltd. 2009-TIOL-179-CESTAT-AHM (iv) Toyota Motor Corp Japan v. CCE ST, Bangalore 2007-TIOL-1865-CESTAT-BANG (v) Larsen and Tourbro Ltd. v. CST, Chennai 2008-TIOL-2357-CESTAT-MAD (ix)The Appellants have placed on record the certificates obtained from all its foreign collaborators that they have not provided any Intellectual Property Right which is covered under any Indian law for the time being in force. (x) The appellants further rely on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be covered under Indian law, the Designs Act, 2000. (ii) The appellants in this regard submit that the above finding is erroneous as the Agreements for transfer of technical know how entered into between the appellants and the foreign collaborators contain certain designs which are subjected to protection under the Designs Law of the foreign country to which foreign collaborator belongs. (iii) It is submitted that designs rights are protected by the municipal laws of each country and the rights are limited to the geography of that particular nation. Hence, a foreign entity cannot transfer (assign/license) its Designs Rights to its Indian counterpart, unless the foreign entity has a registered Design Right in India. A design not registered in India is not treated as a Design Right under the provisions of the Designs Act, 2000. (iv) The appellants submit that none of the Foreign Collaborators with whom the appellants have entered into agreements have registered any of the Designs under Indian law as per the requirements of the Indian Designs Act, 2000 and Design Rules, 2001. Therefore it is submitted that none of the designs transferred to the appellants as a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1994 is entitled to take credit based on the TR6 challan evidencing payment of service tax. Thus the Appellants are entitled to take credit of the service tax and the entire exercise is one of revenue neutrality. Therefore, there can be no intent to evade payment of service tax when the tax paid is available as credit. (ii) The Appellants rely in the matter of CCE, Jamshedpuram Vs. Jamshedpuram Beverages (2007 (214) ELT 321 (SC) wherein it was held that the excise duty paid and the MODVAT credit availed were identical and therefore consequences of payment of excise duty after availing MODVAT credit was revenue neutral, therefore the appeal is dismissed leaving the question of law open. (iii) In this regard, the Appellants also rely on the following decisions:- Amco Batteries vs. CCE 2003 (153) ELT 7(SC) CCE, Mumbai Vs. Mahindra Mahindra Ltd., 2005 (171) ELT 159 (SC) CCE, Mumbai Vs. Mahindra Mahindra Ltd., 2005 (179) ELT 21 (SC) CCE vs. Naramada Chematur Pharma Ltd., 2005 (179) ELT 276 (SC) CCE vs. Narayan Polyplast 2003 (179) ELT 20(SC) Jay Yuhshin Ltd. vs. CCE, New Delhi 2000 (119) E.L.T. 718 (Tri - LB) Brakes India Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, covered under the taxable service of Intellectual Property Service? and if so whether it is liable to levy of service tax under Chapter 5 of the Finance Act 1994 and the Rules made thereunder? The subject show-cause notice dated 20.04.2007 inter alia says that appellants entered into an agreement with respective foreign companies and obtained rights to use the technology for manufacture/sale/marketing the goods on behalf of them and further states that the assessee received the said service and paid ₹ 44,89,660/- (Rupees Forty Four Lakhs Eighty Nine Thousand Six Hundred and Sixty only) as technical know-how fees and ₹ 9,58,55,960/- (Rupees Nine Crores Fifty Eight Lakhs Fifty Five Thousand Nine Hundred and Sixty only) as royalty charges during 1.1.2006 to 31.12.2006 (as per the Annexure enclosed). The show-cause notice states that the right to use the technical know-how for manufacture/sale/marketing the goods is a taxable service under the category of Intellectual Property Rights as defined under Section 65(55b) of the Finance Act 1994 as amended (hereinafter called as the said Act) which reads as follows:- Intellectual Property Service means (a) transferring, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bill of material Assembly drawing Pictures Specification of material and source Manufacturing documentation Manufacturing specifications Job instructions Time standards Drawings for tolls, jigs and fixtures Production testing specifications Purchasing specifications Technical sales documentation in the form of catalogue, brochures Spare parts catalogues Training documentation Explanation of licensors drawings systems, symbol numbering system Computer software in machine readable form 6.3. Further from the License Agreement between the appellants and ABB Stotz-Kontakt GmbH, we quote its Clause 5, which is as follows: CLAUSE 5 - INTELLECTUAL PROPERTY RIGHTS 5.1. Administration Nothing in this Agreement shall oblige either Party to apply for, take out, maintain or defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above referred letter herein below: 6.5. Before we go further into the main issue that whether the services in question would be covered under Intellectual Property Service and whether the same are liable to service tax under the said category of Intellectual Property Service, we would like to refer to the definitions of Intellectual Property Right, and the corresponding taxable service concerning intellectual property namely Intellectual Property Service as defined and given in the Finance Act, 1994. These definitions are given below: 6.5.1 Intellectual Property Right as defined under Section 65(55a) of Finance Act 1994 is as follows: 1[(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; Which has been inserted by Finance Act 2004 dated 10.09.2004 (made effective from 10.09.2004) Intellectual Property Service as defined under Section 65(55b) is as follows: (55b) intellectual property service means,- (a) transferring, 4[temporarily]; or (b) Permitting the use or enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at what has been transferred under the respective agreements between the foreign group company and the appellant can be termed as right to intangible property which is either a trademark or design(s) or patent(s) or any other similar intangible property recognized as such under any existing Indian law (and when it is not a copyright under Indian Copyright Law); and then only such a right would be covered under the definition of Intellectual Property Right as defined in Section 65(55a) of the Finance Act 1994. From the documents on record which are various licensing agreements and submissions of the letters written on behalf of General Manager of the foreign company to the appellant concerning these respective license agreements, which are on record, we find that they do not anywhere say that they are the trademarks, designs, patents or other similar intangible property which are covered by any Indian law on the subject. However it is clear that under these transfer agreements the appellants have been given the right to assemble or manufacture various contracted products and the right to use or otherwise dispose of such products which is evident from the Clause 2.1 of the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase law for the time being in force implies such laws as are applicable in India, 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 (emphasis supplied). 9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a holder of intellectual property right so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs. 9.3 In case a transfer or use of an IPR attracts cess under Section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable (refer Notification No. 17/2004-S.T., dated 10-9-2004). 6.7.1. From the contents of above para 9 of CBEC Circular dated 10.09.2004 it is clear that the wordings under any law for the time being in force means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive agreement(s) do not fulfill the criteria and conditions of the definition of Intellectual Property Right of Section 65(55a) of the Finance Act, 1994. 7.1. Revenue has also cited the case laws in the case of Indian Farmers Fertilizer Co-op. Ltd. Vs. CCE (supra) and Suolificio Chennai Vs. CST, Chennai (supra). We find that CESTAT, Delhi in the case of Indian Farmers Fertilizer Co-op. Ltd.(supra) mainly discussed the Consulting Engineer Services though it says that technical know-how as intellectual property is transferable and it also mentions that know-how as intellectual property can be referred as trade secret. It further says that trade secrets are not protected by law in the same manner as trademarks or patents. It states that trade secret is protected without disclosure of secret. But we do not find any support to the Revenue from this decision [IFFCO Vs. CCE, Bareilly (supra)] of CESTAT, Delhi. Revenue has also referred to CESTAT, Chennai s decision in the case of Suolificio Chennai (supra) where it has been held that transfer of trademarks and drawings, prima facie covered under Intellectual Property Service. Again we do not find any assistance to the Revenue from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Section 65 (105)(zzr) to mean any service provided or to be provided to any person, by the holder of Intellectual Property Right, in relation to Intellectual Property Service. Intellectual Property Service is defined under Section 65(55b) to mean (a) transferring (temporarily) or (b) permitting the use or enjoyment of, any intellectual property right. And Intellectual Property Right as defined under Section 65 (55a) 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. 4.1 Short question to be decided is whether the transfer of technical 'know how' received by the appellant is a service which may be categorized under Intellectual Property Right Services . We find that the definition of Intellectual Property Right must be satisfied to term the services received by the appellant as Intellectual Property Right Services. We find no clue at all in the records as to which type of Intellectual Property Right is being assigned to the Technical know how received by the appellant. It is obvious from the definition of Intellectual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Property Right. We reproduce para 5.5 of the said decision which says that for any transaction to be covered under IPR services has to be first covered under the category of an IPR under an Indian law. CESTAT, Mumbai in the said decision in para 5.5 has observed as below: 5.5 From the above circular, it becomes very clear that to come under the category of IPR, there should be a law in India, Governing such IPR and only IPR covered under the Indian law in force are chargeable to Service Tax. It is well known that there is no law governing trade secrets/confidential information in India and therefore, the rights obtained by the appellant does not constitute intellectual property right as defined in law. Secondly, it is also very clear from the said Circular that a permanent transfer of intellectual property right does not amount to rendering of service. In the present case, the appellant has become a co-owner of the intellectual property which would mean that the transfer is permanent. Therefore, the transaction does not come under the purview of Section 65(55b) of the Finance Act, 1994. 8. Based on the above discussions, analyses and the case laws quoted it is our consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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