Permanent Transfer of Intellectual Property

[RAMNIRANJAN KANDOI]

From R M KANDOI

In one Business Transfer Agreement, where it is written that follwing is transferred----
Assets means--'All intellectual property'
According to me it is permanent & not temporary,
As per Excise Auditor, as VAT is not paid on transfer of Intellectual Property & hence Service Tax is payable.on transfer of 'All Intellectual Property'
Request for your clarification on this point & if any case law then,it will be more helpful,if possible, pl. send

[DR.MARIAPPAN GOVINDARAJAN]

Section 66E of the Finance Act, 1994 provides that temporary transfer or permitting the use or enjoyment of any intellectual property right amounts to declared service and liable for service tax. In my view permanent transfer of intellectual property will not amount to service tax liability.

[Rajagopalan Ranganathan]

Sir,

According to Finance Act, 1994 service tax is payable on the royalty paid by you for transfer of intellectual property right. If the transfer of the right is an one time affair, that is, the same is acquired on payment of one time fee it may be treated as sale and vat is payable. Since you have stated that no vat is paid by you then the amount paid by you to the owner of intellectual property will be treated as royalty and you have to pay service tax on the same.

AI Summary

Permanent transfer of intellectual property may avoid service tax; licence or royalty characterisation can trigger service tax liability. Whether transfer of 'all intellectual property' is taxable under the Finance Act, 1994 turns on characterisation: temporary transfer or permitting use of IP is a declared service under Section 66E and attracts service tax, while a genuine permanent transfer of ownership ordinarily does not. Tax outcome also depends on payment character-one-time fees effecting a sale may attract VAT, whereas payments treated as royalty (where VAT is not charged) may be subject to service tax.