TaxTMI 
TaxTMI 
2018 (12) TMI 866
X X X X Extracts X X X X
X X X X Extracts X X X X
....as agreed at Rs. 425.25 crores. A separate Trade Mark Licensing Agreement was executed on 30.4.2007 as per which Mobis India Ltd. would pay 8.5% of their annual domestic sales to the appellant as fee for trademark license granted to them for a period of 10 years commencing from 1.5.2007 till 30.4.2007. During audit of Mobis India Ltd. conducted by the internal audit wing of LTU, Chennai, it was noticed that in their auditor's report for 2007 - 08, fixed assets, current assets and current liabilities had been mentioned as acquired at book values and that the company had also paid consideration towards vendors and dealer network and goodwill based on the valuation carried out by an independent valuator. The valuation indicated goodwill value at Rs. 80.29 crores. These amounts were also indicated under "Related party disclosure" and under "fixed assets" in the annual report of Mobis India Ltd. Based on the valuation indicated in the accounts of Mobis India Ltd., department was of the view that the amount of Rs. 425.25 crores received as consideration for the transfer of the business included transfer of goodwill also. Thus goodwill was all along part of the consideration for sale of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Court that 'the term goodwill signifies the value of the business in the hands of a successor, so far as increased by the continuity of the undertaking being preserved in the shape of the right to use the old name and otherwise. It is something more than a mere chance or probability of old customers maintaining their connection, though this is a material part of the practical fruits'. Thus, goodwill is a whole advantage belonging to the firm, its reputation and connected materials thereof. There exist no law in India which either recognizes or protects goodwill as an intellectual property right in India. The department has extended the meaning of 'any other similar intangible property' in section 65(55b) of Finance Act, 1994 to include goodwill also by erroneous interpretation. On application of the principle of "ejusdem generis", the only interpretation that can be arrived from the words 'any other similar intangible property' is that other intangible properties which come under "the Cinematograph Act, 1952, the Biological Diversity Act, 2002, The Seeds Act, 1966, Protection of Plant Varieties and Farmers Right Act, 2001, The Geographical Indications of Goods (R&P) Act, 1999 etc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cannot sustain and requires to be set aside. 2.2 The second argument put forward by the ld. counsel was that the appellant has already paid service tax in respect of consideration received as per the separate trademark licensing agreement executed on 30.4.2007 as per which Mobis India Ltd. has to pay 8.5% of their annual domestic sales to the appellant as fee for trademark license. The dispute in the present case is not with regard to the amount received by the appellant as per this agreement dated 30.4.2007. The department alleges that as per the agreement dated 26.4.2007 which is a Business Transfer Agreement, the appellant having received Rs. 425 crores in total such amount would also include the value of goodwill. Though nothing specifically has been stated in the Business Transfer Agreement with regard to transfer of goodwill, Mobis India Ltd. had reflected in their balance sheet an amount of Rs. 80.29 crores being the value of goodwill. Based upon this accounting pattern adopted by Mobis India Ltd., the demand has been raised upon the appellant alleging that there is transfer of goodwill which is transfer of intellectual property right under Section 65(55b). But however, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rises for consideration is whether the transfer if any, of goodwill would fall within the definition of „transfer of intellectual property right service‟ as defined under section 65(55b) of Finance Act,1994. For better appreciation, the said provision is reproduced as below:- 'Intellectual Property Service' is defined in Section 65(55b) of the Finance Act, as under:- 'Intellectual property service' means (a) transferring temporarily or (b) permitting the use or enjoyment of any intellectual property right. 'Intellectual property right' is defined under section 65(55a) of the Finance Act, 1994 as "any right to intangible property namely, trademarks, designs patents or any other similar intangible property, under any law for the time being in force, but does not include copyright". 5.1 From the definition of intellectual property right laid in Section 65(55a), it is clear only IPR which comes under any law in force would come within the ambit of the definition. Though goodwill may be in the nature of intangible right, there is no law which recognizes it as an intellectual property right. In fact, goodwill is attached to an ongoing business whereas IPR is....