2016 (9) TMI 491 - AAR - Service Tax

Service Tax Applicability on Trade Mark/License Fee & Foreign Collaboration Payment by H&M GBC

M/s. H & M Hennes & Mauritz Retail Private Limited Versus Commissioner of Service Tax

The Authority for Advance Rulings determined that both the Trade Mark/License Fee and foreign collaboration agreement payment, along with the Sales and ... Service tax liability - Whether the Trade Mark/ License Fee and the payment made in terms of the foreign collaboration agreement by the applicant to H&M GBC is liable to Service Tax in terms of the Finance Act, 1994 - Held that:- the applicant has entered into Trademark License Agreement with M/s H & M Hennes & Muritz GBC AB, Sweden to use the trademark rights and other intangible property rights and required to pay the License Fee. All intellectual property rights and other rights, including without limitation patents, design rights, trademarks, copyright and know-how, relating to the IP shall all times be the exclusive property of H&M GBC, Sweden. Accordingly, services received by the applicant fall under the declared services and would attract the levy of Service Tax under reverse charge mechanism. Service tax liability - Whether the sales and Business Support Fee paid by the applicant to H&M GBC is liable to Service Tax in terms of the Finance Act, 1994 - Held that:- Sales and Business Support Agreement will be covered in the definition of “service’ under Section 65B (44) of the Finance Act, 1994. Section 68 (2) provides that in respect of such taxable service as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed. Therefore, in terms of above Section 68(2) read with Notification No.30/2012-St dated 20.06.2012, taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory, service tax is payable by the person receiving the service. Therefore, the service is proposed to be provided by H&M GBC, Sweden. Further, as per the provisions of Section 66D, Services received by the applicant does not fall under the “negative list of services’ and would attract the levy of Service Tax under reverse charge mechanism. - Decided against the appellant Issues involved:1. Liability of Trade Mark/License Fee and foreign collaboration agreement payment to Service Tax under the Finance Act, 1994.2. Liability of Sales and Business Support Fee to Service Tax under the Finance Act, 1994.Analysis:Issue 1: Liability of Trade Mark/License Fee and foreign collaboration agreement payment to Service Tax under the Finance Act, 1994The applicant, a wholly owned subsidiary, sought an advance ruling on the taxability of Trade Mark/License Fee and foreign collaboration agreement payment made to H&M GBC under the Finance Act, 1994. The applicant entered into agreements with H&M GBC for exploiting the 'H&M' brand in India. The Trademark License Agreement allowed the applicant to use the trademark rights for distribution and retailing, with a license fee of 1% of total sales to be paid to H&M GBC. The Authority determined that the services received by the applicant, including the intellectual property rights, fell under declared services and were subject to Service Tax under reverse charge mechanism. The ruling concluded that both the Trade Mark/License Fee and the payment under the foreign collaboration agreement were liable to Service Tax as per the Finance Act, 1994.Issue 2: Liability of Sales and Business Support Fee to Service Tax under the Finance Act, 1994The applicant also sought clarification on the taxability of the Sales and Business Support Fee paid to H&M GBC under the Finance Act, 1994. The Sales and Business Support Agreement covered services such as business planning, strategies, and operational support, for which the applicant made variable annual payments to H&M GBC. The Authority determined that these services constituted taxable services under Section 65B (44) of the Finance Act, 1994. As per Section 68(2) read with Notification No.30/2012-ST, services provided by a person in a non-taxable territory and received by a person in a taxable territory attracted Service Tax under reverse charge mechanism. The ruling established that the Sales and Business Support Fee paid by the applicant to H&M GBC was also liable to Service Tax as per the Finance Act, 1994.In conclusion, the Authority for Advance Rulings held that both the Trade Mark/License Fee and the foreign collaboration agreement payment, as well as the Sales and Business Support Fee paid by the applicant to H&M GBC, were liable to Service Tax under the provisions of the Finance Act, 1994. The ruling aligned with the applicant's and the Revenue's views, emphasizing the taxability of these fees and payments under the specified legal framework.