Inter-governmental agreement payments not subject to service tax under Intellectual Property Rights

The Tribunal held that payments made under an Inter-governmental agreement for transfer of technology, design, and technical know-how to an overseas entity did not attract service tax liability under "Intellectual Property Rights." The services received were not considered taxable as they did not qualify as Intellectual Property Services under the Finance Act, 1994. The appeal was allowed, and any consequential relief was granted accordingly. (Case Outcome: Appeal allowed, service tax liability not applicable under Intellectual Property Services category)

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Issues involved:
Interpretation of service tax liability on payments made towards transfer of technology, design, drawing, technical know-how, intangible assets to overseas company under an Inter-governmental agreement.

Analysis:
The appeal involved the issue of whether payments made by the appellants to an overseas entity under an Inter-governmental agreement for transfer of technology, design, technical know-how, etc., should attract service tax liability under the category of "Intellectual Property Rights." The Department issued a show-cause notice demanding service tax, which was confirmed partially in the impugned order. The appellant contended that the agreement was between two Governments, and the payments were not for commercial activities but for defense purposes. The appellant also cited previous judgments where similar payments were not held taxable under specific service categories.

The Department argued that the agreement was between a PSU and a foreign entity under a general agreement between the Governments of U.K. and India, emphasizing the presence of patents, designs, and copyrights in the agreement. The Tribunal analyzed the issue, considering similar services received at different locations for manufacturing aircraft under Inter-governmental agreements. The Tribunal noted that technical know-how was transferred, but since it was not patented in India as per the Board's circular, the services could not be considered taxable. The Tribunal also referred to a Mumbai Bench judgment highlighting that payments for transfer of technical know-how may not fall under scientific or technical consultancy services.

Based on the analysis, the Tribunal found that the services received by the appellants did not qualify as Intellectual Property Services under the Finance Act, 1994. Consequently, the appeal was allowed, and any consequential relief was granted as per the law. The judgment was pronounced and dictated in open court on 27/02/2020.

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