By TIOL News Service

MUMBAI, JULY 07, 2016: A demand of service tax along with interest and penalty has been confirmed against the Appellant, under Reverse charge mechanism, on the premise that the appellant ought to have discharged service tax under the head of Intellectual Property Services (IPR) on the amount remitted by it to various overseas entities towards the right to use/enjoy confidential/technical know-how and patents held by such overseas entities.

Out of the six different agreements in terms of which the right to use/enjoy confidential/technical know-how and patent have been granted, only the patent in respect of Investa Technologies S.A.R.L., is registered in India under the Patents Act, 1970. In respect of the remaining agreements, there is no patent, which is registered under the Patents Act, 1970.

After considering the submissions made by both sides, the CESTAT observed thus –

+ When the legislature has specifically provided that an Intellectual Property Right, that could be taxed as an IPR service is a right to an intangible property, which is recognised under any law for the time being in force, obviously the law being referred to here has to be an Indian Law and not the recognition of the intangible property right under the law of a third country . If an intangible property right was to refer to a right which is recognised by any country, then the legislature would not have used the expression “under any law for the time being in force”. The legislature would have merely stated that an intellectual property right would mean any right to an intangible property. There would have been no need for it to qualify the same with a recognition under any law for the time being in force.

+ It would be clearly incongruous to suggest that an intellectual property right such as a patent or a trade mark is not protected or recognised by the Indian Law, yet the grant of the right to use or a temporary transfer of such a patent or trade mark, which is otherwise not recognised in Indian as a Intellectual Property Right would attract liability to service tax under the head of IPR services. The legislature has in accordance with the global treaty for protection of IPR world over laid down the agreed procedure that any inventor if required to follow, so as to have the patent and trademarks recognised and protected under the Indian laws. If any inventor does not seek protection of its intellectual property under the Indian laws, the same cannot be regarded as an intellectual property right for the purpose of taxing the grant of right to use such a right. The question whether such a service could be taxed under a different head is irrelevant and does not arise as there is no such case made out in the notice.

+ It is also relevant to note here that if the interpretation suggested by the Respondent to the effect that Intellectual property right even if not recognised in India could still be taxed under the head of IPR services if taken as correct it would lead to the expression “under any law for the time being in force” being rendered redundant an otiose. [Aphali Pharmaceuticals Ltd Vs State of Maharashtra 1989 (44) ELT 613 = 2002-TIOL-397-SC-MISC refers]

Adverting to the Board Circular dated 80/10/2004-ST dated 17.9.2004, the Bench observed that there can be no liability to tax under the head of IPR services in respect of an Intellectual Property Right that is not recognised by the law in India.

The CESTAT, therefore, held –

++ In the facts of the present case except for the Patent with respect to Investa Technologies S.A.R.L. which was recognised under the Patents Act 1970 in India, none of the alleged Intellectual Property Rights are recognised under the Indian law and as such there cannot be any tax on the same under the head of IPR services, as the same do not qualify as an Intellectual Property Right, the transfer (temporary) or permitting the right to use or enjoyment of which is liable to service tax.

++ Insofar as the agreement with Investa Technologies S.A.R.L. is concerned the same was entered into on 14.8.2004, prior to IPR services being brought into the net of service tax w.e.f. 10.9.2004. The service itself having been rendered prior to the introduction of the levy, the mere fact that payments for the same were made on a staggered basis over a period of time cannot be a ground for levying service tax merely with reference to the date on which payments were being made.

++ The entire dispute being revenue neutral, there could have been no intention to evade payment of duty and consequently the extended period of limitation was per se not invokable.

In fine, the impugned order was set aside and the appeal was allowed with consequential relief.

Quick reference: Clauses inserted in section 65 of FA, 1994 by the Finance Act, 2004 w.e.f 10.09.2004

(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;

(55b) "intellectual property service" means,

transferring,

(a)  [temporarily]; or

(b) permitting the use or enjoyment of,

any intellectual property right;]

(See 2016-TIOL-1654-CESTAT-MUM)