By TIOL News Service

MUMBAI, JUNE 15, 2017: THE appellant paid royalty to the holding company M/s. Fluent Inc. USA for distribution, marketing and support of software known as FI Software.

The Revenue sought to classify this service under ‘Intellectual Property Service' and confirmed the service tax demand.

The matter is before the CESTAT.

The appellant submitted that in their own case, on identical issue, the jurisdictional Commissioner had confirmed the demand of service tax vide order dt.24.10.2011 which was appealed against and the Tribunal had set aside the order and allowed the appeal by its Order No. A/3929/15/STBdt. 17.12.2015 - 2016-TIOL-107-CESTAT-MUM . And following the same, their appeal should be allowed, the appellant pleaded.

The AR had nothing to add except reiterate the findings of the impugned order.

The Bench extracted in detail the order passed by the co-ordinate Bench and wherein it was concluded thus –

++ It does not require much intelligence to appreciate that the intellectual property referred to in the section has to be an intellectual property under a law. Even otherwise, it is well known that intellectual property rights are defined under specific Acts such as The Trade Mark Act, The Geographical Indications Act, etc. Revenue cannot simply allege that the activity of the appellant is an intellectual property service without specifying the precise intellectual property right. This is the basic flaw in the entire proceedings and shows complete lack of appreciation of the statutory provisions. Therefore, the order deserves to be set aside on this ground alone.

++ We find that the appellant are a wholly owned subsidiary of Fluent Inc. USA. It can hardly be expected that a company will transfer its intellectual property right to its wholly owned subsidiary. Specific clauses of the Agreement clearly show that the appellant cannot disclose transfer or otherwise make available any software products or copies thereof to others. The appellant is only authorised to retain the trade mark of Fluent Inc which are provided by the latter. Fluent Inc. products sold by the appellant can bear the markings of Fluent Inc. The appellant is merely distributing, marketing and supporting set of computer programme knows as FI software. There is absolutely no indication of any transfer of intellectual property right on a plain reading of the Agreement. Neither do we find any hidden or deeper meaning in the Agreement which would indicate transfer of intellectual property right.

Following the ratio of the aforesaid Tribunal's order, the Bench set aside the impugned order and allowed the appeal.

(See 2017-TIOL-2027-CESTAT-MUM)