Perpetual trademark licence treated as intellectual property service; no sales exemption, but penalty deleted for bona fide interpretation.

A perpetual licence to use a trademark, where ownership and supervisory control remain with the grantor and the arrangement is subject to continuing conditions, is not a sale of goods under the Sale of Goods Act, the Central Excise Act or Article 366(29A) of the Constitution. The permission to use the trademark falls within intellectual property service under the Finance Act, 1994, so service tax and interest are payable and exemption under Notification No. 12/2003-ST is unavailable. Where the dispute turns on bona fide legal interpretation and there is no deliberate suppression or intent to evade tax, penalty is not justified and may be waived.

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Issues: (i) Whether the permanent permission granted to use the trademark amounted to sale of goods or fell within intellectual property service liable to service tax, and whether exemption under Notification No. 12/2003-ST was available; (ii) Whether penalty was leviable in a case involving a disputed question of law and interpretation.

Issue (i): Whether the permanent permission granted to use the trademark amounted to sale of goods or fell within intellectual property service liable to service tax, and whether exemption under Notification No. 12/2003-ST was available.

Analysis: The contract, read as a whole, showed that the licensor retained ownership and control over the trademark while permitting its use for specified purposes on perpetual terms subject to continuing conditions. The arrangement was therefore not a transfer of property in goods amounting to sale under the Sale of Goods Act, the Central Excise Act, or Article 366(29A) of the Constitution of India. The permission to use the trademark was instead covered by the definition of intellectual property service under the Finance Act, 1994. Since there was no sale, the claim for exemption under Notification No. 12/2003-ST also did not survive.

Conclusion: The transaction was taxable as intellectual property service and the demand for service tax and interest was sustainable; the assessee was not entitled to exemption under Notification No. 12/2003-ST.

Issue (ii): Whether penalty was leviable in a case involving a disputed question of law and interpretation.

Analysis: The dispute turned on a complex legal characterization of the transaction, and the Court found that the facts did not justify an inference of deliberate suppression or intent to evade tax. In such a situation, invocation of the statutory power to waive penalty was warranted.

Conclusion: The penalty was set aside.

Final Conclusion: The tax and interest demand was upheld, but the penalty was deleted, resulting in only partial relief to the assessee.

Ratio Decidendi: A perpetual licence to use a trademark, where ownership and supervisory control remain with the grantor and the arrangement is subject to continuing conditions, is not a sale of goods but constitutes intellectual property service; penalty is not justified where the dispute is one of bona fide legal interpretation.

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