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TMI Blog2020 (6) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... d. In regard to the second show cause notice dated 17 April 2014, the Commissioner has confirmed the demand amounting to Rs. 26,91,973/- under section 65 (105) (zzr) of the Finance Act for the period April, 2012 to June, 2012 but the demand under 'goods transport agency' service has been dropped. 2. The Appellant is engaged in manufacture of cosmetics and skin care products. It has its corporate office at New Delhi but its factory is situated at Ghaziabad. Two agreements, both dated 27 July, 1994, were entered into by the Appellant with Revlon Mauritius Limited at Mauritius and Freya Holdings Limited at British Virgin Island. Under the former agreement, Revlon Mauritius granted to the Appellant the exclusive right to use the "know how" in any plant approved by Revlon Mauritius in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon products in the territory. 'Know how' has been defined to mean formulae, processes, recipes, product specifications, technical and manufacturing data, information, equipment specification of raw materials, and other technical information and data necessary to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. A second show cause notice dated 17 April, 2014 was also issued to the Appellant for the period April 2012 to June 2012 for payment of service tax under 'intellectual property right' service and for short payment of service tax under GTA service. 6. The Appellant filed a reply to both the show cause notices stating therein that the Appellant had not entered into any agreement with Revlon Mauritius for use of trademark license since the agreement with Revlon Mauritius was only for providing 'know how'. It was also pointed out that the agreement for use of trademark was with Freya Holdings, for which no consideration was paid by the Appellant. It was also stated that the Appellant had not entered into any agreement with Revlon Australia or Revlon South Africa and did not also procure any services from them. It was specifically stated that 'know how' was not covered in the definition of 'intellectual property right' service. It was also pointed out that courier charges could not have been included in the GTA service and the Appellant had correctly discharged the service tax liability under GTA since the amount spent on freight was within the exemption limit. 7. The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that:- (i) The First Agreement dated 27 July, 1994 between the Appellant and Revlon Mauritius provides for payment of royalty as a consideration for the grant of license rights and as per clause 2 of the agreement, license grants covers not only 'know how' but also patent licenses, improvements and maximization of sales; (ii) Clause 2.02 of the First Agreement stipulates that the Appellant has been granted the exclusive right to use the patents in the manufacture, distribution and sale of Revlon products in the territory. Thus, it is not correct for the Appellant to urge that the First Agreement is only for 'technical know how' as the consideration includes all the four elements, namely know how, patents, improvements and maximization of sales; and (iii) As per clause 1.07 of the First Agreement, the meaning of 'know how' includes 'processes', which is covered by the term 'process' contained in section 2(l)(j) of The Patents Act, 1970. Hence, 'know how' is covered by the Patents Act and is, therefore, an 'intellectual property right' under the Finance Act. 11. The contentions advanced by the learned counsel for the Appellant and the learned Authorized Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btain rights ("New Technology Products"), ********* 1.13 "Technical Services" shall mean the technical services to be performed by Licensor under this Agreement, including training of personnel of the Licensee, and other related activities in accordance with the provision of this Agreement. 2 LICENSE GRANTS. 2.01 Know How License. Subject to the provisions of this Agreement from the Effective Date, Licensor hereby grants to Licensee the exclusive right to use the Know How, in any Plant approved by Licensor, in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon products in the Territory. 2.02 Patent License. Subject to the provisions of this Agreement from the Effective Date, Licensor hereby grants to Licensee the exclusive right to use the Patents in the manufacture, distribution and sale of Revlon Products in the Territory. 2.03 Improvements. Licensor shall provide Licensee, free to cost, all modifications and improvements made by it to the Know How, and Licensee agrees that any right to register and obtain patents in any respect of such modifications and improvements vests excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee the Licensed Marks (as defined below) for Revlon Products (as defined below); and WHEREAS, Licensee desires to obtain a license to use the Licensed Marks in connection with the importation, manufacture, merchandising, marketing, promotion, advertising, sale and distribution of Revlon Products, and Licensor is willing to grant such license subject to all the terms of this Agreement; NOW, THEREFORE, in consideration of these premises and the terms and conditions hereinafter set forth, Licensor and Licensee hereby agree as follows: 1. Definitions. The following definitions shall be applicable throughout the Agreement: 1.03 "Licensed Marks" shall mean the trademark "Revlon," such other trademarks as are used on the Revlon Products as set forth in Exhibit A hereto, and any trademark hereafter registered in the Territory for use in connection with Revlon Products and with respect to which Licensor obtains the right to license Licensee hereunder. 1.06 "Revlon Products" shall mean the cosmetic, toiletry, beauty treatment, skin care and fragrance products and lines of such products now or hereafter sold in any country of the world under the brand names identified in Exhibit B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuable goodwill with the public and that any products bearing the Licensed Marks have acquired a reputation of high quality, prestige and style "Licensee acknowledges that Revlon Manufacturing, Ltd ("RML") is the owner of all right, title and interest in and to the Licensed Marks, and of the goodwill attached to the Licensed Marks including that which arises from the sale of Revlon Products hereunder. All use by Licensee of the Licensed Marks shall be deemed to have been made by and for the benefit of RML, and all uses of the Licensed Marks by Licensee, or by any permitted sublicensee or assignee, and any goodwill arising therefrom, shall inure to the sole and exclusive benefit of RMI. 8.04 Warranty. It has been represented and warranted to Licensor and Licensor derivately represents and warrants to Licensee that, to its knowledge and except as described in Exhibit E. (i) RML, in the Territory, has good title to the Licensed Marks free and clear of encumbrances of any nature or kind whatsoever, defects of title or rights of others; (ii) there are no material claims, or any material basis for such a claim, of any other person pertaining to the Licensed Marks, and no proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales per annum. 15. It is the Second Agreement entered into between Freya Holdings and the Appellant that grants the Appellant an exclusive license throughout the Territory to use the Licensed Marks as trademarks and all other intangible rights referred to in clause 8.06 in connection with the business, and the exclusive right to import, make, have made and sell Revlon Products in the Territory. 'Licensed Marks' have been defined in clause 1.03 to mean the trademark 'Revlon' and such or other trademarks as are used on the Revlon Products. 16. It is in the light of the aforesaid provisions of the two Agreements that the contents of the first show cause notice dated 26 December, 2012 have to be examined. This show cause notice mentions that a letter dated 30 August, 2012 was sent by the office of the Deputy Commissioner at Ghaziabad (RUD-I) to the Appellant to the Delhi office to inform that the Appellant was receiving 'inward freight' and 'intellectual property right' service from a service provider situated outside India but was not paying service tax on the gross value paid for receiving the said service. The show cause notice then refers to a letter dated 19 September, 2012 (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - on the taxable services under category of Goods Transport operator service with value amounting to Rs. 4,15,79,523/- during the financial year 2007-08 to 2011-12 as per details given above. The same, totaling to Rs. 5,13,55,390/- (Rs. 5,06,64,186/- + Rs. 6,91,204/-) is recoverable from the party under section 73 of the Finance Act, 1994. (emphasis supplied) 19. The contention of the learned Counsel for the Appellant is that the Appellant had not paid any royalty to Revlon Mauritius for the use of trademark /name and in fact the Appellant had paid royalty to Revlon Mauritius for the license rights granted to it under clause 2.01 of the First Agreement executed between Revlon Mauritius and the Appellant for use of 'know how' in connection with manufacture, marketing, sale and distribution of Revlon Products. The submission is that the exclusive license to use the Licensed Marks as trademarks was granted to the Appellant under the Second Agreement executed between Freya Holdings and the Appellant. The show cause notice, therefore, has failed to distinguish between 'License Grants' under clause 2.01 of the First Agreement executed between Revlon Mauritius and the Appellant and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made aware of the allegations made against it since this is a requirement of the principles of natural justice. The reason being that unless the party is put to such notice, it would have no opportunity to meet the case made out against it. 24. The said proposition was reiterated by the Supreme Court in Commissioner of Customs, Mumbai v/s Toyo Engineering India Limited 2006 (201) E.L.T. 513 (S.C.). The Supreme Court held that the Department cannot travel beyond the show cause notice. 25. In Precision Rubber Industries (P) Ltd. v/s Commissioner of Central Excise, Mumbai. 2016 (334) E.L.T. 577 (S.C.). The Supreme Court again, after relying upon its two earlier decisions, held that a show cause notice is the foundation in the matter of levy and the relevant portion of the judgment is reproduced below:- "10. Our attention has also been drawn to Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd. 2007 (215) E.L.T. 489 (S.C.)] wherein this Court held in Para 21 that it is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. This view was reiterated in Commissioner of Central Excise v. Gas Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought by the Department and the matter was adjourned to 30 October, 2019. 29. Learned Authorized Representative of the Department only placed certain letters sent by his office for making available the files and has stated that the Department, in response, has expressed its inability to place the files or the letter dated 30 August, 2012 as the Department has not been able to trace them. 30. It is not understood as to why the Department should not maintain all the files relating to this Adjudication. The Tribunal would, therefore, be justified in drawing an inference from the facts as available on record. 31. Shri A.K. Sood, learned Counsel appearing for the Appellant made a categorical statement that both the Agreements had been made available to the Department. In this connection learned Counsel placed the communication dated 27 June, 2011 sent by the Department to the Appellant seeking certain information, including a copy of the Agreement between the Appellant and Revlon Mauritius as also between the Appellant and Revlon Australia. The Appellant sent a reply dated 13 July, 2012 enclosing a copy of the Agreement executed between Revlon Mauritius and the Appellant and also st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 1 July, 2012. 36. Section 65 (55a) of the Finance Act that was inserted with effect from 16 May, 2008, defines 'intellectual property right' as follows:- 65 (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; 37. 'Intellectual property service' has been defined under section 55(b) of the Finance Act as follows:- 65 (55b) "intellectual property service" means,- (a) Transferring, temporarily; or (b) Permitting the use or enjoyment of, any intellectual property right; 38. The taxable service under section 65(105)(zzr) of the Finance Act is as follows:- 65(105)(zzr)- 'taxable service' means any service provided or to be provided, to any person, by the holder of intellectual property right, in relation to intellectual property service. 39. It would, therefore, be seen that 'intellectual property right' means any right to intangible property, namely trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so paid would be deductible from the total service tax payable. (refer notification No. 17/2004-ST, dated 10.09.2004)." 41. It is seen from a perusal of the order dated 23 December, 2016 passed by the Commissioner that this aspect has been considered at length by the Commissioner. The Commissioner has examined the meaning of the word 'know how' and has observed that the expression 'any other similar tangible property' used in the definition of 'intellectual property right' will include 'technical Know How', inventions, innovation, secret formulae where the right is granted under the Indian law which is in force and in this connection reliance has also been placed on the Circular dated 17 September, 2004. The Commissioner has observed that the Circular dated 17 September, 2004 clarifies that intellectual property emerges from application of intellect, which may be in the form of invention, design, product, process, technology, book and goodwill and, therefore, 'technical Know How' would be an intellectual property under 'intellectual property service'. The relevant paragraph of the impugned order is reproduced below:- "28.6 Similarly, the expression "any other similar intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by the licensor for production of revlon products. Besides, the licensor has also granted the Noticee the license of exclusive right to use the Patents in manufacture, distribution and sale of Revlon Products in the said territories. The licensor is bound to provide the technical services including training to the personnel of the Noticee. The Revlon products to be manufactured by the Noticee shall invariably have the brand name of the overseas company as per Exhibit-B. I further observe from EXHIBIT-A to the aforesaid agreement dated 27.02.1994 that the Noticee has applied under The Patents Act, 1970 for patenting the process for forming a fatty acid diester, cosmetic composition, containers and bottles. Therefore, technical knowhow received for production of Revlon products has protection and is registered under the Indian law i.e. The Patents Act, 1970. Not only this, I also observe that the Noticee has been using the brand name of the overseas company on the Revlon products vide EXHIBIT-B which has protection in India under Trade & Merchandise Act, 1958 or Design Act, 2000. Undoubtedly the overseas company has not only transferred intellectual property rights temporaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. There should be an independent law for the time being in force in India that protects 'know how', if 'know how' is to be included in the residuary clause 'or any other similar intangible property' in the definition of 'intellectual property right'. 47. This issue was also examined at length by a Bench of the Tribunal at Bangalore in ABB Ltd. Versus Commissioner of C.EX & S.T., LTU, Bangalore 2019 (24) G.S.T.L.55 (Tri.-Bang.) and it was observed that since 'know how' is not recognized as 'intellectual property right' under Indian law, no 'intellectual property right' service can be said to be provided. The relevant portion of the order is reproduced below:- 7.1 After considering the submissions of both the parties and perusal of the material on record, we find that the appellants have paid the royalty/license fee to M/s. ABB Technology Ltd., Zurich, Switzerland towards the receipt of technical know-how and as per the licence agreement, the foreign companies are making available to appellant knowledge by means of data, experience, for the purpose of manufacture, sale and use of the contract product and providing of know-how is not a service which is taxable under the category o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Owners Association cited supra and remanded the matter to the adjudicating authority for passing an order with respect to the demand for the period after 18-4-2006 on the issue of taxability of technical know-how under Intellectual Property Rights service and the Commissioner of Central Tax, Bangalore vide de novo Order-in-Original No. 3/2017-18, dated 29-12-2017, dropped the demand on the technical know-how services even for the period alter 18-4-2000 as the same does not fall under the service viz. Intellectual Property Right service. Further we find that in various decisions relied upon by the appellant cited supra, this issue is no more res integra and has been settled by various decisions of the Tribunal that there cannot be any Service Tax on technical know-how. (emphasis supplied) 48. The demand, in the aforesaid decision, was confirmed under 'intellectual property right' service as the Appellant had paid royalty/ license fee to ABB Ltd. towards the receipt of 'technical Know How', which was quantified as a percentage of the net sales turnover of the goods. The Tribunal examined the definition of 'intellectual property right', 'intellectual property service' and the taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Intellectual Property Rights (i.e. IPRs) such as patents, copyright, trademarks and designs. The definition of taxable 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] 50. It is, therefore, more than apparent that the grant of exclusive right to the Appellant by Mauritius Revlon to use the 'know how' in any plant in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon Products would not fall in the definition of 'intellectual property right' so as to make it taxable under section 65(105) (zzr) of the Finance Act. 51. The order dated 23 December, 2016 passed by the Commissioner, therefore, cannot be sustained. It is, accordingly, set aside and the Appeal is allowed. (Pronounced in the open Court on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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