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TMI Blog2023 (8) TMI 1320X X X X Extracts X X X X X X X X Extracts X X X X ..... transferring of technical know-how cannot be equated to transfer of Intellectual Property Right and that as long as the said Intellectual Property Right is not registered or patented in India; the same would not qualify to be IPR taxable in India in terms of Section 65 (55a) of Finance Act, 1994. The Tribunal in the case of ASEA BROWN BOVERI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX, LTU [ 2016 (7) TMI 559 - CESTAT BANGALORE] observed that 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. This Bench in the case of Schneider Electric India Pvt. Ltd. [ 2023 (6) TMI 1198 - CESTAT CHANDIGARH] considered all the earlier judgments of the Tribunal and came to a considered conclusion that technical know-how is not taxable unless the same is shown to have been registered in India - In the instant case too, it is found that the Department did not produce any evidence to show that the technical know-how or any constituent items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notices dated 23.10.2009 and 11.10.2009, covering the period September 2004 to March 2010, demanding service tax of Rs. 9,82,97,954/-; show cause notices dated 13.09.2011 and29.02.2012, demanding Service tax of Rs.2,83,92,002/- were issued to the appellants. The show cause notices were confirmed by Orders-In-Original No.3- 4/ST/PKJ/CCE/ADJ/2013 dated 17.01.2013 and OIO no. 40- 41/Commr/PKL/2012 dated 05/12/2012, along with interest and penalties as mentioned therein. The contention of the department was that the appellants are required to pay Service Tax under the head Business Auxiliary Service'', on the amount of royalty paid, to their overseas entity and the commission received from Greg Norman Division for identifying and negotiating with Indian exporters, under Reverse charge mechanism. The demand was also on account of consideration received from Matrix Clothing Pvt. Ltd, Super Fashion and Paragon Apparel for importing assistance with respect to exports under the head TICS . Hence, these two appeals ST/56241/2013and ST/57195/2013. 2. Shri B.L. Narsimhan, assisted by Ms. Krati Singh and Shri Aman Garg, learned counsels for the appellants, submits that the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be taxed. He relies on the following cases: GECAS SERVICES INDIA PVT. LTD- 2014 (36) S.T.R. 556 (Tri. - Del.) SEMPERTRANS NIRLON (P) LTD- 2019 (20) G.S.T.L. 560 (Tri. - Mumbai) 5. Coming to the demand in respect of commission received from M/s Greg Norman Division for identifying and negotiating with Indian exporters under Business Auxiliary Service , learned Counsel submits that the subject services are provided by the appellant and payment was received in convertible foreign exchange and services are used outside India; even though the services are undertaken in India the finding of such activity is communicated to the foreign entity for a decision making; and thus services are being used outside India; in view of the Circular No. 111/05/2009-ST dated 24.02.2009 as the benefit of the service accrued outside India, the same needs to be treated as exporter service as held in the following cases: ARCELOR MITAL STAINLESS (I) P. LTD- INTERIM ORDER NO.26/2023 IN ST/88483/2014 (TRI. LB) IBM INDIA PVT. LTD.- 2020 (34) G.S.T.L. 436 (Tri. - Bang.) 6. He submits that the impugned services cannot be classified under clause (iv) of Section 65(19) of the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t contend that the taxable event occurred much before the imposition of levy, it is clear from Para-5 and a statement of Shri Vishnu Bhagath, Director of the appellant that the facility of continuous use was made as part of the renewal of the agreement which was in force upto 2012; he submits that in view of point of Taxation Rules 2011, the service shall be treated as having been provided each time when a payment in respect of such use or benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier. He submits that though the Rules came into effect in 2011, they can throw a light incase of disparity/confusion in the previous period. He submits that the appellant s contention that transfer of technical know-how does not qualify as IPR service is incorrect in view of the following cases: L.G. BALAKRISHNAN BROTHERS LTD.- 2015 (40) S.T.R. 193 (Tri. - Chennai) SHORE TO SHORE MIS PRIVATE LIMITED- 2007 (5) S.T.R. 109 (Tri. - Chennai) HERO HONDA MOTORS LTD.- 2012 (27) S.T.R. 409 (Tri. - Del.) 10. In respect of the services rendered to Greg Norman Division in identification of Indian suppliers, he takes us through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be beneficial to go through the agreement in understanding the nature of the service. We find that the contract dated 1st March, 1995 has, inter alia, the following clauses: 1. Subject to the terms and conditions herein contained, the LICENSOR shall provide to the LICENSEE: data, documentation, drawings and specifications relating to inventions, designs, formulae, processes and similar property (hereinafter referred to as KNOWHOW ). 2. The LICENSOR hereby grants to the LICENSEE, subject to limitations and restrictions contained herein, the non-exclusive, non-transferable right to utilise the technology in the manufacture and distribution of the PRODUCTS in India. --- 5. Each Party shall, during and for the life of this Agreement provide to the other on a continuing basis, developments and improvements effected by it upon the KNOWHOW provided by the LICENSOR to the LICENSEE in terms hereof. It is agreed, however, that if any such development or improvement is of a major nature or is patentable, the other Party shall be entitled to the same only upon payment of such, remuneration as may be agreed upon between the Parties. 14.1. Here are a few clauses of the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Clause 2.1 of the License Agreement between ABB Sace S.p.A. Milano-Italy (Licensor) and the appellants (Licensee), are being reproduced below for making the scope of the subject agreement(s) more clear: - CLAUSE 2 LICENCES 2.1. Scope Licensor grants Licensee under Information and Intellectual Property Rights (if any) : (a) a non-exclusive right to assemble or manufacture the Contract Products in the Assembling or Manufacturing Territory; (b) a non-exclusive right to use, sell or otherwise dispose of the Contract Products assembled/manufactured under this Agreement in the Sales Territory. Export of Contract Products by Licensee to countries outside the Sales Territory is subject to the prior written approval of Licensor, always provided that Licensor s decision shall comply with applicable compulsory legislation. 6.6.3 Important point here is whatever is under transfer by the foreign companies under the respective licenses, - is the said subject matter a right to an intangible property and is the said intangible property a trademark or design or a patent or any other similar intangible property under an Indian law? Here we do not find any eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in India. It clarifies that IPRs covered under Indian Law in force alone are chargeable to Service Tax. It further says that IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services of Intellectual Property Services . Revenue has not been able to prove in any manner that right to any of the intangible properties (by whatever name they call the same i.e. either documents or designs, instructions, catalogues, drawings, product software, testing specification, symbol numbering system, technical knowhow, pictures and so on) is covered as IPR(s) under any of the relevant Indian law. In case of undisclosed information this C.B.E. C. circular itself says that an Indian law does not cover such undisclosed information. In other words, there is no evidence before us to categorically hold that any of the intangible properties, which are the subject matter(s) of the respective agreement(s), which have been transferred by foreign group companies to the appellant company have been registered or covered by any of the Indian law concerning intellectual property and which can be covered under the definition of Intellec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision because firstly it is on the subject of Consulting Engineer Service and secondly we do find that the subject matter(s) of the agreement(s) between the foreign companies and the appellants in the present case are not covered under any Indian law concerning Intellectual Property Rights, which is the basic ingredient of the definition of Intellectual Property Right in Section 65(55a) of Finance Act. We again state that whatever is being transferred even if it is the design or drawings or other document or technical know-how, this has to be first covered under an Indian law on the subject of intellectual property right for declaring it an Intellectual Property Right for the purpose of inclusion of the transfer of said subject matters/documents, etc. under corresponding taxable service namely Intellectual Property Service which has been further defined in Section 65(55b) of the Finance Act, 1994. 7.2 Further we refer to CESTAT, Mumbai s decision in the case of RochemSeperation Systems (supra). CESTAT, Mumbai has inter alia observed in the paras of the said decision as under : 8 . However, the Commissioner failed to analyze the Agreements in detail and came to a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty Right that the right has to be a specific Right under a specific Law. Examples are given under the definition such as the Trade Mark which is a right provided under Trade Marks Act . Similarly the right mentioned as design in the definition is a right under the Design Act . Therefore we find that the technical know-how received by the appellant and the royalty payment made by the appellant to Unisys is nowhere established to result from the use of any Intellectual Property Right. 4.2 We may further go on to add that the Intellectual Property Right should be a right under the Indian Law. Intellectual Property Right not covered by the Indian laws would not be covered under taxable service in the category of Intellectual Property Right Services. We are fortified in our view by Board Circular F. No. 80/10/2004-S.T., dated 17-9-2004 which clarified that Intellectual Property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trade marks and designs. The definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) held as follows: 7 . As regards post 18-4-2006, we find that the demand has been raised under the category of Intellectual Property Rights services under the Finance Act, 1994, by recording that the said technical knowhow which has been given by the Foreign Company is their proprietary interest, and though it is not registered under Patents Act, 1970, the service tax liability arises on interpretation of definition of intellectual property services. 8 . We find that the issue is no more res integra as the Tribunal in the case of Reliance Industries Ltd. (supra) (wherein one of us Shri M.V. Ravindran was a Member) in paragraph Nos. 2 to 12 was considering the very same issue and held that in order to fasten the service tax liability, the person providing the technical knowhow has to be registered with the Patents Authority in India. If the IPR is registered in any foreign country but is not registered in India, the same will not attract the service tax, demand under reverse charge mechanism, is the ratio. We find that the said ratio is squarely applicable in these appeals post 18-4-2006. The same view has been expressed by the Tribunal in the case of Chambal Fertilizers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a one time affair. There is no evidence that their know-how is supplemented by Mundipharma A.G. Switzerland. Therefore, we are in agreement with the submissions on behalf of the appellant that royalty payment in the form of deferred payment for know-how received in 1990. Whether payment for such services rendered is made in one lump sum or made in instalments or based on quantum of sale by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. From the available evidences on record, we accept the submission of the learned Sr. Advocate that the service were rendered in 1990 and for the said services payments were being made periodically as provided in the agreement. 7. Therefore, we hold that no services were being rendered and received during the disputed period. In view of the above, order of the Commissioner cannot be sustained and the same is set aside and the appeal is allowed with consequential relief. Since we are allowing the appeal on this short ground, we are not going into other issues raised by both sides. 19. We find that the appellant submits that it was incorrect to tax the commission, received by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty qualifies or maintains the specified standards, including functionality or utility or quality or safety or any other characteristic or parameters, but does not include any service in relation to inspection and certification of pollution levels ; Section 65(109) : technical inspection and certification agency means any agency or person engaged in providing service in relation to technical inspection and certification ; 65(105)(zzi) to any person, by a technical inspection and certification agency, in relation to technical inspection and certification; From the above, it is clear that the taxability will depend on the conditions that such services are provided by an agency; such agency should involve in inspection or examination and on completion of such inspection or examination; a certificate is issued stating to meet any of the criteria like quality, maintenance of standards, functionality or utility, safety or any other characteristics. The appellants contend that they are not an agency involved in the service of technical inspection and certification. The activity of degassing and purging does not involve inspection or examination of any goods but it is an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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