Permanent transfer of technical know-how is not taxable as Intellectual Property Right Service under Indian service tax law.

Consideration for the permanent transfer of marketing rights and technical know-how was not taxable as Intellectual Property Right Service because liability under the Finance Act, 1994 arises only where there is transfer, temporary use, or enjoyment of an intellectual property right recognised under Indian law. The Tribunal applied the settled principle that a permanent transfer of technical know-how, when it is not a recognised intellectual property right for this purpose, does not amount to rendition of a taxable service. Departmental clarification was consistent with this view. The service tax demand was therefore unsustainable and was set aside.

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Issues: Whether consideration received for transfer of marketing rights and technical know-how under the agreement dated 13.02.2008 was taxable as Intellectual Property Right Service under the Finance Act, 1994.

Analysis: The liability to service tax under the category of Intellectual Property Right Service arises only where there is transfer, temporary use, or enjoyment of an intellectual property right falling within the statutory definition and recognised under Indian law. The Tribunal applied the settled position that technical know-how, when transferred permanently and not constituting a recognised intellectual property right under Indian law, does not satisfy the statutory ingredients of the taxable service. The departmental clarification also supported the view that a permanent transfer of intellectual property does not amount to rendition of service and that only IPRs covered by Indian law are taxable.

Conclusion: The amount received for the transfer of marketing rights and technical know-how was not taxable as Intellectual Property Right Service, and the demand was unsustainable and set aside in favour of the assessee.

Ratio Decidendi: Permanent transfer of technical know-how or similar intangible rights that are not recognised as intellectual property under Indian law does not constitute taxable Intellectual Property Right Service.

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