Technical know-how royalty is not taxable as Intellectual Property Rights service unless the right is recognised under Indian law.

Royalty paid for technical know-how was held not taxable as Intellectual Property Rights service unless the underlying right is a recognised intellectual property right under Indian law. The Tribunal applied its earlier view that an unregistered or otherwise unprotected intangible right does not fall within the statutory definition merely because royalty is paid for its use. As no evidence showed that the know-how was governed by any Indian intellectual property law, the service tax demand under the IPR head was unsustainable and was set aside.

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Issues: Whether royalty paid for technical know-how to a foreign company was liable to service tax under the head of Intellectual Property Rights service.

Analysis: The Tribunal followed its earlier decisions and held that for levy under the statutory definition of Intellectual Property Right, the right must be one recognised under Indian law. Where the technical know-how or similar intangible right is not shown to be registered or otherwise protected as an intellectual property right under Indian law, it cannot be brought within the taxable category merely because royalty is paid for its use. In the present case, no evidence was produced to show that the technical know-how was governed by any Indian law as an intellectual property right.

Conclusion: The demand under Intellectual Property Rights service was not sustainable and was set aside.

Ratio Decidendi: A right can be taxed as an Intellectual Property Rights service only if it is a recognized intellectual property right under Indian law; unregistered or unrecognised technical know-how does not fall within the taxable entry.

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