Intellectual Property Sale -Service Tax Applicability

[Binu Karuthedath]

Dear Sir

One of the Assesse have to sale their registered Brand Name(Intellectual Property) to another Indian Company with consideration .What are the Tax applicability of the sale of Intellectual property

[KASTURI SETHI]

Sh.Binu Karuthedath Ji,

It is taxable service. It is declared service under Section 66(E)((c) of the Finance Act, 1994.

[Binu Karuthedath]

Dear Sir

Thanks for your valuable reply

In the above case the IP have to sale by Raising of VAT invoice and all right and uses of the "Brand" have to sell to another Party and purchaser have to pay the amount to seller. as per the Sec 66(E)(C) of Finance Act In the below declared services is

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

This is not temporary transfer or permitting the use only full sale in the meaning of sale of goods .

Hence is it applicable in Service Tax?

Kindly advice in details

[KASTURI SETHI]

The assessee has either to pay Service Tax or Sale Tax/VAT. Now one has to go through the terms and conditions of the agreement between the buyer and the seller to ascertain whether it is service or sale. Legal language of the the agreement sometimes conveys different essence or message. It is cock sure that either VAT is to be paid or Service Tax is to be paid. Sale or permanent transfer of IPR is not in the list of declared service.You are to peruse the nature of the agreement word for word carefully.

[Ganeshan Kalyani]

I fully agree with Sri Kasturi Sir. Only after going through the agreement and the terms and conditions in it one should give reply. Service tax is so tricky that if you contrue a particular service as exempt Department will see in different perception and would treat as taxable. Hence have a look at the agreement and you will get the answer on your own. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

This forum is actually serves the purpose of 'First Aid'.

[Binu Karuthedath]

Thank you for your valuable support

[Srikanthan S]

Dear All,

VAT on transfer of right to use intangibles : In Jan 2015, the Bombay High Court (HC) in the case of Tata Sons Limited held that the use of ‘TATA’ trademark will attract VAT under “The Transfer of Right to use Goods for any Purpose Act, 1985” (Act). Consequent to this, Maharashtra State issued Trade Circular dt.13.7.2015. ► Based on the said Bombay HC decision, the Commissioner of Sales Tax issued a Trade Circular re-iterating the observations of the HC dealing with the issue of applicability of VAT on transfer of right to use intangibles. The said observations of HC are as under: ► On perusal of the agreement and provisions, HC observed that in case of intangible goods, the right to use them is capable of being transferred and if transferred it may be subject to tax. ► The Act does not give any indication that the right to use incorporeal goods should be exclusively transferred in favour of the transferee. ► The Act does not envisage exclusive and unconditional transfer of the right to use goods. ► HC also distinguished BSNL’s case wherein it was held that in order to attract levy under the transfer of right to use goods, the transfer has to be to the exclusion of the transferor and once the right is transferred the owner cannot again transfer the right to others. ► Bombay HC observing that the judgement in the case of Dukes and Sons Ltd1 is still good law; held that even when there is transfer of right to use goods to multiple users, it would attract tax under the Act. Trade Circular No. 11T of 2015 dated 13 July 2015 issued by the Commissioner of Sales Tax, Maharashtra The Circular relying on the Bombay HC decision in case of Tata Sons Ltd clarified that the law is now settled and VAT can be levied on transfer of right to use goods of intangible nature i.e. trademark, technical know-how, copyright and other intangibles, etc. even if it is transferred to multiple users. The Circular elucidates Bombay High Court’s decision in the case of Tata Sons Limited*and concludes that VAT can be levied on transfer of right to use goods of intangible nature i.e. trademark, technical know-how, copyright and other intangibles, etc. even if it is transferred to multiple users. If any one wants the judgment and the Trade Circular, please let me know.

AI Summary

Tax Implications on Selling Brand Names: Service Tax or VAT? Agreement Terms are Key. An individual inquired about the tax implications of selling a registered brand name to another Indian company. A respondent clarified that the transaction could be subject to either Service Tax or VAT, depending on the agreement's terms. The sale of intellectual property rights is not explicitly listed as a declared service under the Finance Act, 1994. Another participant referenced a Bombay High Court decision, which stated that VAT could apply to the transfer of rights to use intangibles, even if transferred to multiple users. The discussion emphasized the importance of reviewing the agreement to determine tax liability.