ST - IPR service - Nature of 'technical knowhow' transferred to appellant from among trade mark, design, patent has not been identified in SCN/o-in-o and which is critical flaw: CESTAT
By TIOL News Service
MUMBAI, OCT 04, 2016: M/s Qualcomm Inc USA, entered into three agreements for procuring software and software service, viz. BREW Operator Agreement dated 17th February 2004 for licence set-up, launch and maintenance of software, BREW Chat Agreement dated 27th May 2004 and Technical Service Agreement dated 2 nd March 2007. The adjudicating authority did not accept the contention of the appellant that they are in receipt of 'Information technology service' and held that the service rendered is that of 'intellectual property service' as it was technology that was transferred against payment based on downloads made by subscribers of the appellant using the service of the provider.
Reliance was placed on the decision of the Tribunal in Araco Corporation v. Commissioner of Central Excise - 2004-TIOL-1104-CESTAT-BANG holding that transfer of technical knowhow is in the nature of rendering of 'intellectual property service'. It was also held that copyright is not involved as both hardware and software technology is used to service the customers of the appellant. By resort to rule 2(1)(d)(iv) of STR, the appellant was held liable to tax from 10th September 2004.
The demand of Rs.2,03,95,756/- was confirmed by the CCE for the period from 10th September 2004 to 31 st March 2007 with interest and penalties galore.
Before the CESTAT the appellant submitted that the demand can be segregated for the period from 10th September 2004 to 17th April 2006 [Rs.1,81,08,316/-]and for the period thereafter [Rs.24,87,440/-]; that in view of the apex court decision in Indian National Shipowner's Association - 2011-TIOL-05-SC-ST, service tax liability on provision of service from abroad would not devolve on their being rendered to Indian entity prior to 18th April 2006 as section 66A of Finance Act, 1994 was brought into force only then.
It is further submitted that 'information technology service' being the more specific description the service is rendered liable to tax only from 16th May 2008; that copyright being excluded from section 65(55a) of Finance Act, 1994 would render the activity in dispute to be outside the scope of 'intellectual property service'. Reliance is placed on the case of Tata Consultancy Services Ltd. - 2015-TIOL-2370-CESTAT-MUM.
The AR reiterated the findings in the impugned order to justify the demand and penalties.
The CESTAT observed that the decision of the Bombay High Court in the case of Indian National Ship owner's Association - 2008-TIOL-633-HC-MUM-ST as affirmed by the Supreme Court in dismissing appeal of Revenue - 2011-TIOL-05-SC-ST, appears to have been lost sight of by the adjudicating authority inasmuch as in case of 'reverse charge' liability to tax, the demand relating to the period prior to 18th April 2006 does not have the authority of law.
The Tribunal also added that Section 65(105)(zzr) has been invoked in the notice but the nature of 'technical knowhow' transferred to appellant from among trade mark, design, patent, etc. has not been identified. Likewise, it has not been established if the said 'intellectual property right' was acknowledged under the relevant Indian law and, thereby, within the ambit of the definition in section 65(55a). Terming this as a critical flaw in the SCN and by relying upon the decision in re TATA Consultancy Services Ltd. - 2015-TIOL-2370-CESTAT-MUM, the CESTAT held that the demand for the period after 18th April 2006 is also without sanctity of law.
The impugned order was set aside the appeal was allowed.
(See 2016-TIOL-2619-CESTAT-MUM)
