2015 (9) TMI 215 - AT - Service Tax

Tribunal rules no service tax on royalty for Intellectual Property Services pre-10.9.2004

The tribunal overturned the decision of the lower authorities, ruling in favor of the appellant in a case concerning service tax liability on royalty ... Demand of service tax - Receipt of royalty - Held that:- both the lower authorities have erred in coming to a conclusion that appellant is liable to pay the service tax. if amount which is paid for as royalty and remains undisputed, the said amount of royalty cannot be covered under the Intellectual Property Service which came into tax net from 10.9.2004. It is seen from the records that the lower authorities have sought to recover the service tax liability from the appellant by invoking the provisional collection of tax to hold that service tax liability arises. In our view, this is incorrect, atleast, in respect of service tax liability, as in the case of service tax liability on any new services, it comes into effect only from the date which is notified by the Central Government by notification. - notification which was issued for taxing an amount paid as royalty under Intellectual Property Service was w.e.f. 10.9.2004. If that be so, service tax liability would not arise on the amount received by the appellant during the period 20.4.2004 to 10.9.2004. - impugned order is unsustainable and liable to be set aside - Decided in favour of assessee. Issues:- Service tax liability on royalty received for the period 1.4.2004 to 10.9.2004 under Intellectual Property Services category.Analysis:1. The appellant was charged with not discharging service tax liability for royalty received from M/s. Dhariwal Industries Ltd. The revenue authorities claimed the appellant owed service tax based on audited annual reports. The appellant's appeal was rejected by the first appellate authority.2. The appellant argued that service tax liability should not apply for the period 1.4.2004 to 10.9.2004 as Intellectual Property Services were brought under service tax only from 10.9.2004. The appellant highlighted the agreement with M/s. Dhariwal Industries Ltd. and contended that the service tax liability did not arise until 10.9.2004.3. The respondent referred to Notification No. 18/2004-S.T., stating service tax liability would not apply to the portion of taxable service received before 10.9.2004. The respondent emphasized that the balance sheet was finalized on 8.9.2005, possibly making the appellant ineligible for the exemption.4. The tribunal analyzed the agreement between the parties, noting the royalty payments from 20.4.2004 to 10.9.2004 were calculated based on the finalized balance sheet on 8.9.2005. It was established that no service tax was applicable to Intellectual Property Services during the period in question.5. The tribunal concluded that the lower authorities erred in holding the appellant liable for service tax. The service tax liability on royalty only applied from 10.9.2004 onwards, as per the notification. Therefore, the tribunal set aside the impugned order and allowed the appeal, ruling in favor of the appellant.