Permanent transfer of know-how and confidential information falls outside taxable intellectual property right service.

Transfer of technology and confidential information under the settlement agreement was held not to constitute taxable intellectual property right service under the Finance Act, 1994. The decisive factors were that the know-how was treated as trade secrets or confidential information, no Indian law then recognised such undisclosed information as an intellectual property right for service tax purposes, and the agreement conferred co-ownership with full rights to use, assign, sell, license, transfer or convey the interest. That arrangement was inconsistent with a mere temporary licence or permission to use. The service tax demand was therefore unsustainable.

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Issues: Whether the transfer of technology and confidential information under the settlement agreement amounted to an "intellectual property right service" taxable under the Finance Act, 1994, or whether it was a permanent transfer/co-ownership arrangement outside the scope of taxable service.

Analysis: The dispute turned on the nature of the rights transferred. The material showed that the transferred know-how was treated in the foreign proceeding as trade secrets or confidential information, and there was no Indian law then in force recognizing such undisclosed information as an intellectual property right covered by the service tax entry. The agreement further showed that the appellant became a co-owner with full rights to use, assign, sell, license, transfer or convey its interest, which was inconsistent with a mere temporary transfer or permission to use an intellectual property right. The Board's circular also supported the view that only IPRs covered by Indian law were taxable and that a permanent transfer of IPR did not amount to rendering of service.

Conclusion: The transaction did not fall within intellectual property right service, and the service tax demand was unsustainable.

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