2023 (11) TMI 169 - AT - Service Tax

Swiss technology transfer escapes service tax as intellectual property rights lack Indian legal protection

CESTAT Ahmedabad allowed the appeal in a service tax dispute regarding technology transfer from a Swiss company. The tribunal held that service tax on ... Intellectual Property Rights service - registration of foreign technology under Indian law - taxability of imported know-how/technology - reverse charge liability for IPR services - applicability of levy with reference to date service rendered - extended period of limitationIntellectual Property Rights service - registration of foreign technology under Indian law - taxability of imported know-how/technology - Services received from foreign suppliers in the form of technology transfer/royalty are not taxable as Intellectual Property Rights service where the IPR/technology is not recognized or protected under any law in force in India. - HELD THAT: - The Tribunal applied the statutory definitions of 'intellectual property right' and 'intellectual property service' and the Central Board of Excise & Customs clarification that only IPRs prescribed under law for the time being in force in India are chargeable. Finding no evidence that the imported technology/rights were registered or protected under Indian law, the Tribunal held that such imported know how does not fall within the definition of IPR service under the Finance Act, 1994. Reliance was placed on prior Tribunal decisions holding that an IPR must be recognized under Indian law to attract service tax under the IPR service head. On this basis the demand of service tax confirmed under the head of Intellectual Property Service was held unsustainable. [Paras 7, 8]Demand of service tax under Intellectual Property Rights service set aside for services in respect of technology/know how not protected under Indian law.Applicability of levy with reference to date service rendered - extended period of limitation - Service tax cannot be levied in respect of agreements under which the service was rendered prior to the introduction of IPR service in the statute; extended period of limitation is not invocable where the taxing entry was not in force when the service was rendered. - HELD THAT: - The Tribunal noted that the IPR service levy came into force on 10-9-2004 and that where services were rendered before the introduction of the taxing entry, subsequent payments cannot be taxed by reference to the date of payment. Relying on earlier Tribunal and higher court decisions, the Tribunal held that the relevant date for determining liability is the date the service was rendered; therefore agreements executed prior to the levy cannot be retrospectively brought to tax merely because payments were staggered later. Consequently, the extended period of limitation was held not invocable and the demand unsustainable on this ground as well. [Paras 9]Demand and invocation of extended limitation in respect of services rendered prior to introduction of IPR levy disallowed; demand set aside.Final Conclusion: The demand of service tax and penalties confirmed on the appellant under the head of Intellectual Property Rights service is set aside: (i) because the imported technologies/rights were not protected under any law in force in India and thus do not attract IPR service tax; and (ii) insofar as services were rendered prior to the introduction of the IPR levy, such services cannot be taxed with retrospective effect and the extended period of limitation is not invocable. Issues Involved:1. Classification of transactions under 'Intellectual Property Service'2. Applicability of service tax on technology transfer agreements3. Requirement of registration of intellectual property in India4. Applicability of service tax on agreements entered prior to specific datesSummary:1. Classification of transactions under 'Intellectual Property Service':The appellant, Intas Pharmaceuticals Limited, entered into various technology transfer agreements with foreign entities. The Revenue classified these transactions under the category of 'Intellectual Property Service' and demanded service tax on a reverse charge basis as per Section 66A of the Service Tax Act, 1944. A show cause notice was issued, and a demand of service tax amounting to Rs. 49,01,798/- was confirmed under Intellectual Property Right Service, along with penalties under Sections 76, 77, and 78.2. Applicability of service tax on technology transfer agreements:The appellant argued that the technologies transferred were not registered in India and thus, not liable to service tax prior to the introduction of the negative list of Services w.e.f. 01.07.2012. They relied on the clarification issued vide F.No. B2/8/2005-TRU dated 10.09.2004, which stated that only IPRs covered under Indian law were chargeable to service tax. The Tribunal found that the entire technology was imported from abroad, and no evidence of registration under any Indian law was produced by the Revenue.3. Requirement of registration of intellectual property in India:The definition of 'Intellectual Property Service' and 'Intellectual Property Rights' as per Sections 65(55a) and 65(55b) of the Service Tax Act requires that the intellectual property should be protected under Indian law to be taxable. The Tribunal cited previous decisions, including Munjal Showa Ltd. and Chambal Fertilizers & Chemicals Ltd., which held that IPRs not registered in India are not liable for service tax. The Tribunal concluded that since the technologies in question were not registered under any Indian law, they could not be taxed under 'Intellectual Property Service'.4. Applicability of service tax on agreements entered prior to specific dates:The appellant also contended that no service tax was leviable on agreements entered into with suppliers prior to 18.04.2006. The Tribunal referred to the decision in Reliance Industries Ltd., which was upheld by the Hon'ble High Court of Gujarat, stating that services rendered prior to the introduction of the levy could not be taxed based on subsequent payments.Conclusion:The Tribunal held that the services received by the appellant were not covered under 'Intellectual Property Rights services' as defined under Section 65(105)(zzr) of the Finance Act, 1994, and therefore, no service tax was payable. The demand and penalties were set aside, and the appeals were allowed. The judgment emphasized that only technologies protected by Indian law could be charged under 'Intellectual Property Service'.