2018 (2) TMI 18 - AT - Service Tax

Tribunal rules no service tax on royalty paid to foreign company for trademark use

The Tribunal dismissed the department's appeal, ruling that the appellant was not liable to pay service tax on royalty paid to a foreign company for the ... Intellectual Property Service - The department was of the view that since the Intellectual Property Service came within the tax net with effect from 10.09.2004, the respondents were liable to pay service tax as a service recipient of the foreign company under the reverse charge mechanism - Held that: - an identical issue was considered by the Tribunal in the case of Commissioner of Service Tax, Delhi-III Vs Denso Haryana Pvt. Ltd [2015 (11) TMI 235 - CESTAT NEW DELHI] where the Tribunal has observed that the agreement was executed before 10.09.2004 and there cannot be any continuous supply of service so as to make the same taxable after 10.09.2004 - however, prior to 18.04.2006, the demand unsustainable as per decision laid down in the case of Indian National Shipowners Association [2008 (12) TMI 41 - BOMBAY HIGH COURT] - appeal dismissed - decided against Revenue. Issues:1. Liability of service tax on royalty paid for the use of trade mark under reverse charge mechanism.2. Interpretation of continuous supply of service in the context of Intellectual Property Service.3. Applicability of service tax on royalty paid to foreign agents prior to a specific date.Analysis:Issue 1: Liability of service tax on royalty paid for the use of trade mark under reverse charge mechanismThe case involved a dispute regarding the liability of the appellant to pay service tax on the royalty paid to a foreign company for the use of a trade mark under the reverse charge mechanism. The department contended that the appellant was liable to pay service tax as a service recipient of the foreign company after Intellectual Property Service came within the tax net. The original authority confirmed the demand, but the Commissioner (Appeals) set it aside. The department appealed to the Tribunal, arguing that the appellant should pay service tax on the royalty. However, the Tribunal dismissed the appeal, stating that the agreement was executed before the service became taxable, and there was no continuous supply of service to make it taxable post the tax introduction.Issue 2: Interpretation of continuous supply of service in the context of Intellectual Property ServiceThe key point of contention was whether the Intellectual Property Service could be considered a continuous supply beyond the date of the agreement. The department argued that since the enjoyment of the trade mark right continued during the disputed period when the service became taxable, the appellant should pay service tax on the royalty. In contrast, the respondent contended that the agreement and royalty payment were made before the service became taxable, citing a relevant legal precedent. The Tribunal analyzed the facts and legal precedents, ultimately holding that there was no continuous supply of service post the introduction of tax liability on Intellectual Property Service.Issue 3: Applicability of service tax on royalty paid to foreign agents prior to a specific dateThe respondent's counsel referred to a specific case to support the argument that before a certain date, no service tax was payable on royalty or amounts paid to foreign agents under the reverse charge mechanism. The Tribunal considered this argument and found it valid, citing a relevant decision to support the conclusion that the demand was unsustainable before a specific date. Consequently, the Tribunal upheld the Commissioner (Appeals) decision to set aside the demand, leading to the dismissal of the department's appeal.This detailed analysis of the judgment showcases the legal reasoning behind the Tribunal's decision on each issue raised in the case.