Technical know-how royalties fall outside intellectual property service levy, making the service tax demand unsustainable.

Mere transfer or receipt of technical know-how, without transfer of a taxable intellectual property right such as design, trademark or patent, does not fall within the intellectual property service entry for service tax. Applying its earlier view on similar facts, CESTAT Bangalore treated royalty paid for technical know-how and royalty received from domestic customers for such transfer as outside that levy, making the demand for service tax, interest and penalties unsustainable. The adjudication order was set aside, with consequential relief granted as per law.

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Issues: Whether royalty payments made for receiving technical know-how and royalty received from domestic customers for transfer of technical know-how were liable to service tax as intellectual property service.

Analysis: The Tribunal noted that the controversy was covered by its earlier decision on similar facts, where technical know-how was distinguished from transfer of design, trademark, patent or other intellectual property rights for the purpose of service tax levy. Applying that view, the impugned demand based on the alleged intellectual property service classification was found unsustainable.

Conclusion: The demand of service tax, interest and penalties on the royalty/technical know-how transactions was set aside and the issue was answered in favour of the assessee.

Final Conclusion: The appeal succeeded and the adjudication order was annulled with consequential relief as per law.

Ratio Decidendi: Mere transfer or receipt of technical know-how, without transfer of a taxable intellectual property right of the kind alleged, does not attract service tax under the intellectual property service entry.

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