IPR service tax coverage excludes rights not covered by Indian law, supporting stay of recovery on a prima facie case.

An agreement granting patent and technology rights from a foreign entity, with limited modification rights and periodic royalty payments, was prima facie found not to amount to a permanent transfer. The departmental circular was read to mean that only intellectual property rights covered under Indian law fall within the taxable entry for Intellectual Property Rights Services, while IPRs not covered by Indian law fall outside it. On that basis, the appellant made out a prima facie case for complete waiver of the confirmed demand and penalties, and recovery was stayed pending disposal of the appeal.

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Issues: Whether the appellant had made out a prima facie case for stay of recovery of the confirmed demand and penalties on the ground that the technology and patent rights obtained from a foreign entity were not permanently transferred and, in any event, the clarification in the departmental circular excluded IPRs not covered by Indian law.

Analysis: The agreement showed that the appellant received certain patent and technology rights from an entity registered outside India, with only limited rights of modification and with periodic royalty payments for a specified period. On a prima facie reading, the arrangement did not amount to a permanent transfer of the rights. The clarification in para 9.1 of the departmental circular further indicated that only IPRs covered under Indian law were liable to service tax under Intellectual Property Rights Services, and that IPRs not covered by Indian law would fall outside the taxable service.

Conclusion: The appellant established a prima facie case for complete waiver of the confirmed demand and penalties, and recovery was stayed till disposal of the appeal.

Ratio Decidendi: IPRs not covered by Indian law are not chargeable to service tax under the applicable IPR service entry, and a prima facie showing to that effect justifies stay of recovery.

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