TaxTMI 
TaxTMI 
2020 (6) TMI 353
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....ds transport agency" service has been dropped. In regard to the second show cause notice dated 17 April 2014, the Commissioner has confirmed the demand amounting to Rs. 26,91,973/- under section 65 (105) (zzr) of the Finance Act for the period April, 2012 to June, 2012 but the demand under 'goods transport agency' service has been dropped. 2. The Appellant is engaged in manufacture of cosmetics and skin care products. It has its corporate office at New Delhi but its factory is situated at Ghaziabad. Two agreements, both dated 27 July, 1994, were entered into by the Appellant with Revlon Mauritius Limited at Mauritius and Freya Holdings Limited at British Virgin Island. Under the former agreement, Revlon Mauritius granted to the Appellant the exclusive right to use the "know how" in any plant approved by Revlon Mauritius in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon products in the territory. 'Know how' has been defined to mean formulae, processes, recipes, product specifications, technical and manufacturing data, information, equipment specification of raw materials, and other t....
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.... tax on the GTA service rendered by the Appellant. 5. A second show cause notice dated 17 April, 2014 was also issued to the Appellant for the period April 2012 to June 2012 for payment of service tax under 'intellectual property right' service and for short payment of service tax under GTA service. 6. The Appellant filed a reply to both the show cause notices stating therein that the Appellant had not entered into any agreement with Revlon Mauritius for use of trademark license since the agreement with Revlon Mauritius was only for providing 'know how'. It was also pointed out that the agreement for use of trademark was with Freya Holdings, for which no consideration was paid by the Appellant. It was also stated that the Appellant had not entered into any agreement with Revlon Australia or Revlon South Africa and did not also procure any services from them. It was specifically stated that 'know how' was not covered in the definition of 'intellectual property right' service. It was also pointed out that courier charges could not have been included in the GTA service and the Appellant had correctly discharged the service tax liability under GTA since the amount spent on freigh....
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....k Pandey, learned Authorized Representative of the Department has, however, supported the impugned order and submitted that:- (i) The First Agreement dated 27 July, 1994 between the Appellant and Revlon Mauritius provides for payment of royalty as a consideration for the grant of license rights and as per clause 2 of the agreement, license grants covers not only 'know how' but also patent licenses, improvements and maximization of sales; (ii) Clause 2.02 of the First Agreement stipulates that the Appellant has been granted the exclusive right to use the patents in the manufacture, distribution and sale of Revlon products in the territory. Thus, it is not correct for the Appellant to urge that the First Agreement is only for 'technical know how' as the consideration includes all the four elements, namely know how, patents, improvements and maximization of sales; and (iii) As per clause 1.07 of the First Agreement, the meaning of 'know how' includes 'processes', which is covered by the term 'process' contained in section 2(l)(j) of The Patents Act, 1970. Hence, 'know how' is covered by the Patents Act and is, therefore, an 'intellectual property right' unde....
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....) or any cosmetic, toiletry, beauty treatment, skin care or fragrance products incorporating new technologies hereafter developed or owned by Licensor or its Affiliates or to which Licensor or its Affiliates hereafter obtain rights ("New Technology Products"), ********* 1.13 "Technical Services" shall mean the technical services to be performed by Licensor under this Agreement, including training of personnel of the Licensee, and other related activities in accordance with the provision of this Agreement. 2 LICENSE GRANTS. 2.01 Know How License. Subject to the provisions of this Agreement from the Effective Date, Licensor hereby grants to Licensee the exclusive right to use the Know How, in any Plant approved by Licensor, in accordance with the processes, specifications and recipes thereof in connection with the manufacture, marketing, sale and distribution of Revlon products in the Territory. 2.02 Patent License. Subject to the provisions of this Agreement from the Effective Date, Licensor hereby grants to Licensee the exclusive right to use the Patents in the manufacture, distribution and sale of Revlon Products in the Territory. 2.03 ....
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....the Appellant and Freya Holdings) AGREEMENT, dated as of December 30, 1993 between "FREYA HOLDINGS LTD.," a British Virgin Islands corporation ("Licensor") and MODI-REVLON PRIVATE LIMITED, an Indian corporation ("Licensee"). WITNESSETH WHEREAS, Licensor has obtained the right to license to Licensee the Licensed Marks (as defined below) for Revlon Products (as defined below); and WHEREAS, Licensee desires to obtain a license to use the Licensed Marks in connection with the importation, manufacture, merchandising, marketing, promotion, advertising, sale and distribution of Revlon Products, and Licensor is willing to grant such license subject to all the terms of this Agreement; NOW, THEREFORE, in consideration of these premises and the terms and conditions hereinafter set forth, Licensor and Licensee hereby agree as follows: 1. Definitions. The following definitions shall be applicable throughout the Agreement: 1.03 "Licensed Marks" shall mean the trademark "Revlon," such other trademarks as are used on the Revlon Products as set forth in Exhibit A hereto, and any trademark hereafter registered in the Territory for use....
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....hall use the Licensed Marks strictly in accordance with any and all applicable trademark and other laws and shall use such legends, markings or notices in connection therewith as are required by law or otherwise as may be reasonably required to protect rights thereto.**** 8.03 All Rights in RML. Licensee acknowledges that the Licensed Marks (including the name "Revlon") have acquired valuable goodwill with the public and that any products bearing the Licensed Marks have acquired a reputation of high quality, prestige and style "Licensee acknowledges that Revlon Manufacturing, Ltd ("RML") is the owner of all right, title and interest in and to the Licensed Marks, and of the goodwill attached to the Licensed Marks including that which arises from the sale of Revlon Products hereunder. All use by Licensee of the Licensed Marks shall be deemed to have been made by and for the benefit of RML, and all uses of the Licensed Marks by Licensee, or by any permitted sublicensee or assignee, and any goodwill arising therefrom, shall inure to the sole and exclusive benefit of RMI. 8.04 Warranty. It has been represented and warranted to Licensor and Licensor derivately represent....
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....Under clause 2.01, Revlon Mauritius granted to the Appellant the exclusive right to use 'know how' in any plant approved by Mauritius Revlon in connection with the manufacture, marketing, sale and distribution of Revlon Products in the Territory. Clause 7 deals with Consideration. Clause 7.01 provides that in consideration of the grant of license rights by Revlon Mauritius, the Appellant shall pay to Revlon Mauritius a royalty of 5 per cent of its net sales per annum. 15. It is the Second Agreement entered into between Freya Holdings and the Appellant that grants the Appellant an exclusive license throughout the Territory to use the Licensed Marks as trademarks and all other intangible rights referred to in clause 8.06 in connection with the business, and the exclusive right to import, make, have made and sell Revlon Products in the Territory. 'Licensed Marks' have been defined in clause 1.03 to mean the trademark 'Revlon' and such or other trademarks as are used on the Revlon Products. 16. It is in the light of the aforesaid provisions of the two Agreements that the contents of the first show cause notice dated 26 December, 2012 have to be examined. This show cause notice me....
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....ipient." xxxxx xxxxxx xxxxxx Whereas it appears that the assessee failed to pay Service Tax including Education Cess and Secondary & Higher Secondary Education Cess amounting to Rs. 5,06,64,186/- on the taxable services under category of intellectual Property Right Services with value amounting to Rs. 46,07,84.847/- and short paid Service Tax including Education Cess and Secondary & Higher Secondary Education Cess amounting to Rs. 6,91,204/- on the taxable services under category of Goods Transport operator service with value amounting to Rs. 4,15,79,523/- during the financial year 2007-08 to 2011-12 as per details given above. The same, totaling to Rs. 5,13,55,390/- (Rs. 5,06,64,186/- + Rs. 6,91,204/-) is recoverable from the party under section 73 of the Finance Act, 1994. (emphasis supplied) 19. The contention of the learned Counsel for the Appellant is that the Appellant had not paid any royalty to Revlon Mauritius for the use of trademark /name and in fact the Appellant had paid royalty to Revlon Mauritius for the license rights granted to it under clause 2.01 of the First Agreement executed between Revlon Mauritius and the Appellant f....
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....on the basis of an allegation not made in the show cause notice. 23. In this connection it would be pertinent to refer to the decisions of the Supreme Court in Collector of Central Excise v/s H.M.M. Limited 1995 (76) ELT 497 (S.C.), Kaur & Singh v/s Collector of Central Excise, New Delhi 1997 (64) ELT 289 (S.C.) and Amrit Foods v/s Commissioner of Central Excise, U.P. 2005 (190) ELT 433 (S.C.). The Supreme Court repeatedly held that the party to whom a show cause notice is issued must be made aware of the allegations made against it since this is a requirement of the principles of natural justice. The reason being that unless the party is put to such notice, it would have no opportunity to meet the case made out against it. 24. The said proposition was reiterated by the Supreme Court in Commissioner of Customs, Mumbai v/s Toyo Engineering India Limited 2006 (201) E.L.T. 513 (S.C.). The Supreme Court held that the Department cannot travel beyond the show cause notice. 25. In Precision Rubber Industries (P) Ltd. v/s Commissioner of Central Excise, Mumbai. 2016 (334) E.L.T. 577 (S.C.). The Supreme Court again, after relying upon its two earlier decisions, held that a show cau....
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....ommissioner at Ghaziabad demanding a copy of the letter dated 30 August, 2012 and stated that despite the request, a copy of this letter was not provided. Time was, accordingly, granted to the Authorized Representative of the Department up to 23 October, 2019 to place all the records and it was also made clear that no further time shall be granted and that if the records were not produced, an inference will be drawn from the facts already available on the records. On 23 October, 2019 one week further time was sought by the Department and the matter was adjourned to 30 October, 2019. 29. Learned Authorized Representative of the Department only placed certain letters sent by his office for making available the files and has stated that the Department, in response, has expressed its inability to place the files or the letter dated 30 August, 2012 as the Department has not been able to trace them. 30. It is not understood as to why the Department should not maintain all the files relating to this Adjudication. The Tribunal would, therefore, be justified in drawing an inference from the facts as available on record. 31. Shri A.K. Sood, learned Counsel appearing for the Appel....
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....ice and not beyond it. 35. A perusal of the first show cause notice indicates that the demand made has been made under 'intellectual property rights' service from 2007 up to March, 2012, while a perusal of the second show cause notice indicates that the demand has been under 'intellectual property rights' from April, 2012 to June, 2012. Thus, the entire period for which the demand has been made under 'intellectual property rights' in the two show cause notices is prior to the introduction of the negative list with effect from 1 July, 2012. 36. Section 65 (55a) of the Finance Act that was inserted with effect from 16 May, 2008, defines 'intellectual property right' as follows:- 65 (55a) "intellectual property right" 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; 37. 'Intellectual property service' has been defined under section 55(b) of the Finance Act as follows:- 65 (55b) "intellectual property service" means,- (a) Transferring, temporarily; or (b) Permitting the use or enjoyment....
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....ated 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 intellectual property right" so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs. 9.3 In case a transfer or use of an IPR attracts cess under Section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable. (refer notification No. 17/2004-ST, dated 10.09.2004)." 41. It is seen from a perusal of the order dated 23 December, 2016 passed by the Commissioner that this aspect has been considered at length by the Commissioner. The Commissioner has examined the meaning of the word 'know how' and has observed that the expression 'any other similar tangible property' used in the definition of 'intellectual property right' will include 'technical Know How', inventions, innovation, secret formulae where the right is granted under the Indian law....
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....he Commissioner dealing with this aspect is reproduced below:- "28.7 On carefully sifting through the said agreement including the supplementary agreement, I find that Revlon Mauritius Ltd, the overseas licensor, has granted the Noticee the license of exclusive right to use their knowhow in accordance with the processes, specifications and recipes in connection with the manufacture, marketing, sale and distribution of Revlon Products in the territory of India, Nepal and Bhutan. The knowhow has to be used by the Noticee either in any of their plants or in the plant of contract manufacturer(s) duly approved by the licensor for production of revlon products. Besides, the licensor has also granted the Noticee the license of exclusive right to use the Patents in manufacture, distribution and sale of Revlon Products in the said territories. The licensor is bound to provide the technical services including training to the personnel of the Noticee. The Revlon products to be manufactured by the Noticee shall invariably have the brand name of the overseas company as per Exhibit-B. I further observe from EXHIBIT-A to the aforesaid agreement dated 27.02.1994 that the Noticee has appli....
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.... exclusive right to use the 'know how' would not include such a right in the definition of 'intellectual property right'. 45. Learned Authorized Representative of the Department does not dispute this position but what he contends is that since the items mentioned in the definition of 'know how' are covered by the term 'process' contained in section 2 (l) (j) of the Patents Act 1970, 'technical Know How' would be covered by the Patents Act, 1970 and, therefore, would be 'intellectual property right'. 46. It is not possible to accept this contention advanced by learned Authorized Representative of the Department. There should be an independent law for the time being in force in India that protects 'know how', if 'know how' is to be included in the residuary clause 'or any other similar intangible property' in the definition of 'intellectual property right'. 47. This issue was also examined at length by a Bench of the Tribunal at Bangalore in ABB Ltd. Versus Commissioner of C.EX & S.T., LTU, Bangalore 2019 (24) G.S.T.L.55 (Tri.-Bang.) and it was observed that since 'know how' is not recognized as 'intellectual property right' under Indian law, no 'intellectual property right'....
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.... which is in the nature of property, no service was provided by the foreign companies. This issue has been considered by the Tribunal in the appellant's own case which is reported in 2017 (49) S.T.R. 209 and it was held by the Division Bench that the right to know-now does not fall in the definition or intellectual Property Right as given in Section 65(55a) of the Finance Act and Service Tax is not leviable on the same under the Finance Act. Further we find that the Division Bench in another case of the appellant vide Final Order No. 20183/2016, dated 2-2-2016 allowed the appeal of the appellant for the period prior to 18-4-2006 by relying on the decision in the case of Indian National Ship Owners Association cited supra and remanded the matter to the adjudicating authority for passing an order with respect to the demand for the period after 18-4-2006 on the issue of taxability of technical know-how under Intellectual Property Rights service and the Commissioner of Central Tax, Bangalore vide de novo Order-in-Original No. 3/2017-18, dated 29-12-2017, dropped the demand on the technical know-how services even for the period alter 18-4-2000 as the same does not fall under the ser....