Transfer of right to use trademark bars service tax, but refund fails under unjust enrichment for lack of proof

An exclusive worldwide right to use a trademark for 99 years, coupled with restrictions on the transferor's own use and re-licensing, was treated as a transfer of the right to use goods and not a mere temporary licence; service tax was therefore not leviable on the royalty and the demand failed. However, refund of tax paid after the novation agreement was denied because the claimant did not prove that the incidence of tax had not been passed on, so the doctrine of unjust enrichment barred refund and the rejection was sustained.

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Issues: (i) Whether service tax was leviable on royalty received for grant of licence to use the trademark. (ii) Whether refund of service tax paid after the novation agreement dated 24.02.2010 was admissible.

Issue (i): Whether service tax was leviable on royalty received for grant of licence to use the trademark.

Analysis: The arrangement, as modified by the novation agreement, granted an exclusive worldwide right to use the trademark for 99 years, restrained the transferor from using the same rights during the period, and excluded the transferor from re-licensing the same rights to others. Applying the attributes of transfer of right to use goods and the constitutional concept of deemed sale, the transaction was treated as a transfer of right to use goods and not merely a temporary licence amounting to a declared service.

Conclusion: Service tax was not leviable on the royalty, and the demand was unsustainable in favour of the assessee.

Issue (ii): Whether refund of service tax paid after the novation agreement dated 24.02.2010 was admissible.

Analysis: Although the amount paid was held not to be tax on the transaction, the refund was rejected because the tax burden had been collected and no evidence was produced to show that the incidence had not been passed on. The doctrine of unjust enrichment was applied, and the rejection was supported by the principles governing indirect tax refunds.

Conclusion: The refund claim was not admissible, and the rejection was sustained against the assessee.

Final Conclusion: The demand of service tax was set aside, but the refund rejection was upheld, resulting in partial relief to the assessee.

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