Running Royalty

[MITSUI PRIME ADVANCED]

Dear Sir,

Good Noon,

Pl. advice to us if we will going to pay royalty from India to Japan as a "Running Royalty" in such service tax position.

service tax applicable on royalty or not.

pl. advice.

Thanks & Regards

Arjun Sachdeva

[Mukesh Shah]

Temporary transfer or permitting the use / enjoyment of any Intellectual property right is a declared service and liable to service tax. 

Royalty is normally paid towards enjoyment of IP rights. The provider of service is assumed to be in Japan (non-taxable territory). Hence, recipient of service in India will be liable to pay service tax under reverse charge. 

AI Summary

Service tax on royalty: recipient in India liable under reverse charge when provider is in a non taxable territory.
Temporary transfer or permitting use or enjoyment of intellectual property rights is a declared service liable to service tax; royalties paid for enjoyment of IP are taxable. If the provider is in a non taxable territory, the Indian recipient is liable to pay service tax under the reverse charge mechanism for running royalty payments.