Whether Royalty payment liable for service tax

[krishnan n r]

Indian Research Society transfered new technology to a manufature telecom product for a technical know how fee and the manufaturer has to pay a percentage of royalty on the sale of product for a given period of time.  Question arises whether the service tax is payable on the royalty payment received by the Transferor and if it is so, when the incidence of tax arises in such cases

 

[Sucheta Agrawal]

Dear Sir,

As per my views " the Payments of royalty in the common parlance are not insisted as payment for a service provided. It is understood as a share of product or profit reserved by owner for permitting another the use of his property. Royalty payments in the present case for the use of technology and know-how cannot be equated with any services to be provided  to the appellants, thus there is no liability to pay service tax.'   

there are also some judgments are available on the said issue as under-

M/s NAVINON LTD Vs COMMISSIONER OF CENTRAL EXCISE, MUMBAI-VI, or some more cases search on the site

[Surender Gupta]

The case cited by Sucheta  in the matter of Navinon Ltd.  (2004 -TMI - 156 - CESTAT, MUMBAI) is appliable for the period prior to 10.9.2004. With the introduction of IPR category w.e.f. 10.9.2004, service tax is payable on royalty from Intellectual Property servcies. Allowing use of Know how is IPR activity. Therefore, liable to service tax.

[YAGAY andSUN]

Royalty payment is taxable under Intellectual Property Service w.e.f. 10-09-2004. Pay tax and do relax.

[Sucheta Agrawal]

Dear Sir,

Plz note :- if there is permanent transfer of IPR made then there is no service tax as per Circular No. 80/10/2004-ST dated 17.09.2004 and the Technical Know How (which is not patented) is not taxable.

[YAGAY andSUN]

I do agree with the view point of Sucheta Agarwal that permanent transfer of IPRs rights does not amount to rendering of service.

[YAGAY andSUN]

Further, according to the Notification No. 17/2004-ST, dated 10-09-2004, there is also a cess under Section 3 of the Research and Development Cess Act, 1986 leviable and the amount of such cess so paid would be deductible from the total service tax payable. Currently, the rate of R&D Cess is 5%.

AI Summary

Royalty taxability under Intellectual Property services attracts service tax after statutory change; permanent transfers of IPR remain exempt. Royalty payments for use of IPR or permitting use of know how are taxable under the Intellectual Property services category introduced by statute; however, permanent transfers of IPR rights are not treated as services and are excluded from service tax. An R&D cess applies in connection with the notification introducing IP services and such cess may be deductible from the total service tax liability.