Unregistered foreign trademark royalties are not taxable as intellectual property rights service when the right is not recognised under Indian law.

Service tax on trademark royalty was held not sustainable where the payment related to use of a foreign trademark that was neither registered nor otherwise recognised for enforcement under Indian law. The Tribunal applied its earlier view that intellectual property rights service can be taxed only when the underlying right is statutorily recognised in India; a mere reference to the Trade Marks Act, 1999 does not make an unregistered foreign trademark taxable on reverse charge basis. The supporting circular was read consistently with that position, so the demand and penalties were set aside with consequential relief.

---

---

Issues: Whether consideration paid for use of a foreign trademark not registered or protected under Indian law was taxable as intellectual property rights service on reverse charge basis.

Analysis: The service tax demand was founded on the premise that use of the trademark amounted to taxable intellectual property rights service under the Finance Act, 1994. The decisive question was whether the right had been recognised for enforcement under Indian law. The Tribunal followed its earlier decisions holding that, for the levy to apply, the intellectual property right must be registered or otherwise recognised under the law in force in India. A mere reference to the Trade Marks Act, 1999 did not make an unregistered foreign trademark a taxable right for reverse charge purposes. The cited circular also supported the view that only rights covered under Indian law were chargeable.

Conclusion: The demand of service tax on the trademark royalty was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The appeals succeeded, and the impugned orders confirming service tax and penalties were annulled with consequential relief.

Ratio Decidendi: For levy of service tax on intellectual property rights service, the underlying right must be statutorily recognised and enforceable under Indian law; an unregistered foreign trademark not so recognised is not taxable on reverse charge basis.

---