Waiver of Service Tax on Technology Transfer for Intellectual Property Rights

The Tribunal granted a waiver of pre-deposit of service tax under Intellectual property right services for technology transfer under the reverse charge mechanism. The applicants argued that the technology transfer was not covered under Patent law and had already paid service tax on patents registered in India. The Tribunal found merit in the applicant's argument, noting their disclosure of services in Service Tax Returns and the revenue-neutral situation. Relying on relevant case laws, the Tribunal waived the entire amount of service tax, interest, and penalty, staying the recovery during the appeal.

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Issues:
Waiver of pre-deposit of service tax under Intellectual property right services for technology transfer under reverse charge mechanism.

Analysis:
The case involved the applicants seeking a waiver of pre-deposit of service tax confirmed under Intellectual property right services for technology transfer under the reverse charge mechanism. The service was received from a foreign supplier located outside India without an office in India. The show-cause notice was issued on 06.05.2010 for the period 18.4.2006 to 13.12.2009. The applicant argued that they received services of IPR and technical know-how, believing that the technology transfer was not covered under Patent law. They contended that only patents registered in India were liable for service tax, and as two of the patents were registered in India, they had already paid the service tax on those. The applicant also claimed that the services received were declared in their Service Tax Returns, known to the department, and thus the demands for an extended period were not sustainable. They further argued that since they had to pay service tax under the reverse charge mechanism, which entitled them to take credit immediately, the situation was revenue-neutral. The applicant relied on the judgment of Reliance Industries Ltd. 2009 (241) ELT 153, confirmed by the Hon'ble High Court in 2010 (255) ELT A77 and CCE vs. Indeos 2010 (254) ELT 628 to support their case.

The stay application was opposed by the respondent, arguing that the law was clear that the applicants were liable to pay service tax as the service recipients from their foreign service provider. The demand for the normal period required pre-deposit at that stage. After hearing both sides and considering the submissions, the Tribunal found merit in the applicant's argument. It was noted that the applicants genuinely believed that the service of technical transfer/technical know-how was not covered under Patent law and had disclosed the services in their Service Tax Returns. The Tribunal observed that if the service tax had been paid, the applicant was entitled to credit. Considering the revenue-neutral situation and the case laws cited by the applicant's counsel, the Tribunal found a strong prima facie case for the waiver of pre-deposit. Consequently, the Tribunal waived the requirement of the entire amount of service tax, interest, and penalty, and stayed the recovery thereof during the pendency of the appeal.

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