Royalty for technical know-how and documentation was not taxable as intellectual property right service under Indian service tax law.

Royalty paid under a technical licence for non-exclusive use of technical documentation and know-how was not taxable as intellectual property right service because the arrangement did not involve any trademark, design, patent or other intellectual property right recognised under Indian law. The Board's clarification was noted to confine taxability to intellectual property rights in force under Indian law, and the record showed no material that the royalty was paid for such a taxable right. On that basis, the service tax demand was held unsustainable, and the consequential liability was set aside.

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Issues: Whether royalty paid under the Technical License Contract Agreement for use of technical documentation and know-how was liable to service tax as intellectual property right service under Section 65(55a) and Section 65(55b) of the Finance Act, 1994.

Analysis: The agreement granted a non-exclusive and non-transferable right to use technical documentation and know-how for manufacturing, assembling, procuring components, developing improvements and distributing the licensed products. The payment was therefore for technical know-how and documentation, not for any trademark, design, patent or other intellectual property right covered by Indian law. The Board's clarification also stated that only intellectual property rights recognized under Indian law for the time being in force were taxable, and that intangible rights not so covered would not fall within the taxable service. On the record, no material showed that the royalty was paid for a taxable intellectual property right.

Conclusion: The royalty payments did not constitute taxable intellectual property right service and the service tax demand was unsustainable.

Final Conclusion: The appeal succeeded and the demand, along with consequential liability, was set aside.

Ratio Decidendi: Royalty paid for mere technical know-how and documentation, without transfer or licensing of an intellectual property right recognized under Indian law, does not attract service tax as intellectual property right service.

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