TaxTMI 
TaxTMI 
2016 (7) TMI 559
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....nto License Agreement with foreign companies and obtained rights to use the technology for manufacture in consideration of which they had paid technical know-how fees of Rs. 44,89,660/- (Rupees Forty Four Lakhs Eighty Nine Thousand Six Hundred and Sixty only) and royalty charges of Rs. 9,58,55,960/- (Rupees Nine Crores Fifty Eight Lakhs Fifty Five Thousand Nine Hundred and Sixty only) during the period of 01.01.2006 to 31.12.2006. The impugned order held that for these payments the service tax was liable to be paid under the category of Intellectual Property Service. 2. The appellants have been represented by learned advocate, Shri G. Shivadass, who has inter alia submitted as follows: 2.1. (a) M/s. ABB Ltd. (hereinafter referred to as the appellants) are engaged in the manufacture of various electrical goods such as Control and Relay Panel, Capacitors, Relays, Drives, DCS Systems, Air Circuit breakers, Contactors, Motors etc; and also providing services viz., erection, installation, commissioning of said equipment and machinery. (b) In and around the year 2002 the appellants had entered into license agreement with the following foreign companies, which are....
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....e in machine readable form (d) The technology transferred by the Foreign Companies was developed by them and is the exclusive property of the respective entities. Under the aforesaid agreement(s) the Companies transferred licensed use of their technical information, know-how and trade secrets which were not registered under any Indian law for time being in force. They did not license to the appellants any patent, copyright, design, or any other similar intellectual property rights. Certificates obtained from the Foreign Companies are enclosed. 2.2. Earlier also department issued a show-cause notice dated 22.09.2006 demanding service tax under the category of Intellectual Property Service. This demand in show-cause notice was dropped by the Additional Commissioner under Order-in-Original No. 19/2007 dated 30.03.2007 saying that know-how is not covered under any Indian Law for the time being in force following Circular 80/04-ST dated 17.09.2004 and the Tribunal decision in the case of M/s. IFFCO V. CCE reported in [2007 (5) S.T.R. 281 (Tri.-Del.)]. For these facts the Commissioner, LTU invoked provisions under Section 84 of the Central Excise Act a....
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....e scope of service under the above insertion the Department has issued a clarification vide F. No. B2/8/2004 TRU dated 10.09.2004 which provides as under: "09. Intellectual property services (other than copyrights): 9.1 Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e.IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase law for the time being in force implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services. 9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a holder of intellectua....
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.... know-how as a trade secret would protect such confidential information by non-compete or non-disclosure contracts. Unlike patent or trade mark, the attribute of protection of confidential information in the know-how gives perpetual monopoly in such secret information which does not expire over a period of time as is usual for the protection in form of validity period granted to patents and copyrights. Where trade secrets are recognized, the creator of property regarded as trade secret is entitled to regard some special knowledge as intellectual property. A trade secret is such sort of information, which is not generally known to the relevant portion of the public, that confers some sort of economic benefit on its holder and which is the subject of reasonable efforts to maintain its secrecy. Trade secrets are, however, not protected by law in the same manner as trademarks or patents. ... [Emphasis Supplied] (vii) The above view finds support from the TRIPS Agreement where in Section 7 relating to Protection of Undisclosed Information, the measures to protect the same are set out. (viii) Further, in support of the view that the transfer of kn....
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.... argument that no IPR which is protected under any Indian law for the time being in force has been transferred to the Appellants, since the agreement specifically provides that the consideration is having no nexus with any IPR transferred under the agreement the royalty payment made cannot be made liable to Service Tax. 3-B. TRANSFER OF DESIGNS/DRAWINGS UNDER THE AGREEMENTS WITH THE FOREIGN COLLABORATOR IS NOT INTELLECTUAL PROPERTY WITHIN THE MEANING OF THE DESIGNS ACT, 2000 (i) The Ld. Commissioner has held in the impugned Order-in-Original that the transfer of technical know-how and technology licensing include provision for the requisite drawings, specifications and other processes required for manufacture/assembly of contract products and that the designs and drawings transferred as a part of technical know how would be covered under Indian law, the Designs Act, 2000. (ii) The appellants in this regard submit that the above finding is erroneous as the Agreements for transfer of technical know how entered into between the appellants and the foreign collaborators contain certain designs which are subjected to protection under the Designs Law....
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.... Elite Detectives Pvt. Ltd. V. Commr. of Service Tax, Bangalore, 2006 (4) STR 583 (Tri.-Bang.). Phoneix Mills Ltd. V. Union of India, 2004 (168) ELT 310 (Bom.). Sri Ayyappan Silicate & Chemical Products (P) Ltd. V. CCE, Trichy, 2004 (165) ELT (Tri.-Chennai). Union of India V. Garware Nylons Ltd., 1996 (87) ELT 12 (SC). Collector of Central Excise, Cochin V. Fertilizers and Chemicals, Travancore Ltd., 1986 (24) ELT 388 (Tribunal). Tata Export Ltd. V. Union of India and others, 1985 (22) ELT 732 (MP) Hevaecrumb Rubber (P) Ltd. V. Superintendent of Central Excise, 1983 (14) ELT 1685 (Ker.). Navin Chimmanlal Sutaria V. Union of India and others, 1981 (8) ELT 913 (Bom.). 3-D ENTIRE ISSUE IS ONE OF REVENUE NEUTRAL (i) In terms of Rule 9(1)(e) of the Cenvat Credit Rules, 2004 the person liable to pay service tax under Rule 2(1)(d)(iii),(iv) and (v) of the Service Tax Rules, 1994 is entitled to take credit based on the TR6 challan evidencing payment of service tax. Thus the Appellants are entitled to take credit of the service tax and the entire exercise is one of revenue neutrality. Therefore, there ca....
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....CCE Chennai, reported in 2004 (174) ELT 19 (Tri-LB) 4. The Revenue has been represented by learned AR, Shri Mohd Yusuf, who has reiterated the findings given in the impugned order dated 03.08.2007. Learned AR has cited the CESTAT, Chennais decision in the case of Suolificio Chennai Vs. CST, Chennai [2008 (11) S.T.R. 414 (Tri.-Chennai)] saying that transfer of trademarks and drawings, prima facie covered under Intellectual Property Service and therefore subject transactions are liable for service tax under the category of Intellectual Property Service. He also relied on the Tribunal's decision in the case of Indian Farmers Fertilizer Co-op Ltd. Vs. CCE, Bareilly reported in [2007 (5) S.T.R. 281 (Tri.-Del.)] in support of his argument. 5. We have carefully considered the facts on record and the submissions of both the sides and the case laws quoted. 6. The main issue here is that whether transfer of technical know-how/technology transferred to the appellant company under various license agreements by the group foreign companies is, covered under the taxable service of Intellectual Property Service? and if so whether it is liable to levy of service tax under Chapter 5 of ....
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....ment(s). We are herein giving a small list of some of the documents etc which the appellants are getting from their foreign companies under these agreements. Production line support for initial set up Electro Static Discharge (ESD) Working instructions Assembly line training Automated Test System with a safety features Testing System Softwares Upgradation in product software by R & D Centre Global Supplier support which will have global certification - Under laboratories Complete set of manufacturing drawings Technical provisions for material, semi-finished product Supervision and inspection as well as additional technical documentation necessary for to enable licensee to manufacture product with quality similar to that of licensor manufactured. Bill of material Assembly drawing Pictures Specification of material and source Manufacturing documentation Manufacturing specifications Job instructions Time standards Drawings for tolls, jigs and fixtures Production testing specifications Purchasing specifications Technical sales documentation in the form of catalogue, brochures Spare parts catalogues Training docu....
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....d trade secrets which are not registered under any Indian law for time being in force. This letter further says that the technology transferred under this agreement is exclusive property of ABB, Belgium. Similar letters in respect of the agreements entered into with other foreign group companies which are subject matter of this case have also been filed by the appellants. 6.4.1. In order to make above things more clear and contextually more meaningful, we are reproducing above referred letter herein below: 6.5. Before we go further into the main issue that whether the services in question would be covered under Intellectual Property Service and whether the same are liable to service tax under the said category of Intellectual Property Service, we would like to refer to the definitions of Intellectual Property Right, and the corresponding taxable service concerning intellectual property namely Intellectual Property Service as defined and given in the Finance Act, 1994. These definitions are given below: 6.5.1 Intellectual Property Right as defined under Section 65(55a) of Finance Act 1994 is as follows: 1[(55a) intellectual property right means any right to intangi....
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....g in force, but does not include copyright. 6.6.1. We find that foreign group companies by transfer of various documents etc are placing at the disposal of the appellants especially the technical knowledge which may be called technical information, technical know-how and trade secrets so that the appellant, an Indian company namely M/s. ABB Ltd. Bangalore could manufacture right kind of products which have been mentioned in the schedule of the respective agreement(s) as contract products. 6.6.2. The question now arises that what has been transferred under the respective agreements between the foreign group company and the appellant can be termed as right to intangible property which is either a trademark or design(s) or patent(s) or any other similar intangible property recognized as such under any existing Indian law (and when it is not a copyright under Indian Copyright Law); and then only such a right would be covered under the definition of Intellectual Property Right as defined in Section 65(55a) of the Finance Act 1994. From the documents on record which are various licensing agreements and submissions of the letters written on behalf of General Manager of the foreign c....
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....e (No. 2) Bill 2004, which was enacted on 10.09.2004. In respect of Intellectual Property Service the said CBEC Circular in its para 9 says as below: "9.Intellectual property services (other than copyrights): 9.1 Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase law for the time being in force implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services (emphasis supplied). 9.2 A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a holder of inte....
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.... or any other similar intellectual property rights. The conclusive point here is that the subject facts and the conditions do not fulfill the ingredients of the definition of Intellectual Property Right as given in the Section 65(55a) of Finance Act, 1994. 7. During the hearing of the case the learned AR appearing for the Revenue has given certain technical literature on Patents, IPRs, Trade Secrets and Technical Know-How etc. but we find that the contents of the said technical literature do not help the case of the Revenue when the subject matter(s) of respective agreement(s) do not fulfill the criteria and conditions of the definition of Intellectual Property Right of Section 65(55a) of the Finance Act, 1994. 7.1. Revenue has also cited the case laws in the case of Indian Farmers Fertilizer Co-op. Ltd. Vs. CCE (supra) and Suolificio Chennai Vs. CST, Chennai (supra). We find that CESTAT, Delhi in the case of Indian Farmers Fertilizer Co-op. Ltd.(supra) mainly discussed the Consulting Engineer Services though it says that technical know-how as intellectual property is transferable and it also mentions that know-how as intellectual property can be referred as trade secret. It ....
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....ugh discusses the issue of Intellectual Property Right it concluded there that the demand is time-barred, we are deciding the matter only on the basis of limitation. Further we refer to CESTAT, Mumbai's decision in case of Tata Consultancy Services Ltd. (supra), where it held that intellectual property right not covered by Indian laws would not be covered under the taxable service in the category of IPR services. In this regard we are reproducing below paras 4, 4.1, 4.2 and 4.3 to make the position more clear: "4. The taxable service under consideration is defined under Section 65 (105)(zzr) to mean any service provided or to be provided to any person, by the holder of Intellectual Property Right, in relation to Intellectual Property Service. Intellectual Property Service is defined under Section 65(55b) to mean (a) transferring (temporarily) or (b) permitting the use or enjoyment of, any intellectual property right. And Intellectual Property Right as defined under Section 65 (55a) means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright.....
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....2015 (39) S.T.R. 112 (Tri. Mumbai) =2015-TIOL-120-CESTAT-MUM in which it was held that mere transfer of technology is certainly not related to service provided in relation to Intellectual Property Right service which involves the transfer or use of any Intellectual Property Rights." 7.3. We also refer to CESTAT, Mumbai's decision in the case of Thermax Ltd. (supra). CESTAT, Mumbai in the said decision has observed that the subject transaction has to satisfy the requirement of Section 65(55b) of the Finance Act, 1994 so as to cover the same under the service concerning Intellectual Property Right. We reproduce para 5.5 of the said decision which says that for any transaction to be covered under IPR services has to be first covered under the category of an IPR under an Indian law. CESTAT, Mumbai in the said decision in para 5.5 has observed as below: "5.5 From the above circular, it becomes very clear that to come under the category of IPR, there should be a law in India, Governing such IPR and only IPR covered under the Indian law in force are chargeable to Service Tax. It is well known that there is no law governing trade secrets/confidential information in India and th....