Technical know-how royalties outside intellectual property service; service tax demand cannot be sustained.

Royalty paid for technical know-how was not chargeable to service tax as intellectual property service because the levy applies only where there is a transfer or permission to use an intellectual property right recognised under Indian law. The tribunal noted that the Board's clarification confined the taxable net to recognised intellectual property rights, excluding unrecognised know-how or undisclosed information. As the payment was consideration for technical know-how and not for a legally recognised intellectual property right, the demand was unsustainable.

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Issues: Whether royalty paid for receiving technical know-how was chargeable to service tax under the category of intellectual property service.

Analysis: The taxable service relating to intellectual property requires a right in intangible property of the kind covered by law for the time being in force, together with a temporary transfer of that right or permission to use or enjoy it by the holder of the right. The Board's clarification stated that only intellectual property rights recognised under Indian law were within the taxable net, while undisclosed information or other unrecognised know-how was outside it. Applying this framework, the payment made for technical know-how was held to be consideration for know-how and not for an intellectual property right recognised under Indian law. The issue had already been settled by earlier tribunal decisions holding that technical know-how does not fall within intellectual property service.

Conclusion: Royalty paid for technical know-how was not liable to service tax under intellectual property service and the demand could not be sustained.

Ratio Decidendi: Only a transfer or permission to use an intellectual property right recognised under Indian law falls within taxable intellectual property service; payment for technical know-how not so recognised is the levy.

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