TaxTMI 
TaxTMI 
2023 (8) TMI 1320
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....ons, designs, formulae, processes and similar property rights, commonly known as technical know-how; RIC India was required to pay a royalty of 5% of net sales as per the agreement to the overseas entity. An investigation was initiated against the appellants and on conclusion of the same show cause notices dated 23.10.2009 and 11.10.2009, covering the period September 2004 to March 2010, demanding service tax of Rs. 9,82,97,954/-; show cause notices dated 13.09.2011 and29.02.2012, demanding Service tax of Rs.2,83,92,002/- were issued to the appellants. The show cause notices were confirmed by Orders-In-Original No.3- 4/ST/PKJ/CCE/ADJ/2013 dated 17.01.2013 and OIO no. 40- 41/Commr/PKL/2012 dated 05/12/2012, along with interest and penalties as mentioned therein. The contention of the department was that the appellants are required to pay Service Tax under the head "Business Auxiliary Service'', on the amount of royalty paid, to their overseas entity and the commission received from Greg Norman Division for identifying and negotiating with Indian exporters, under Reverse charge mechanism. The demand was also on account of consideration received from Matrix Clothing Pvt. Ltd, ....
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....OWA LTD.- 2017 (5) G.S.T.L. 145 (Tri. - Chan.) • RELIANCE INDUSTRIES LTD.-2016 (44) S.T.R. 82 (Tri. - Mumbai) 4. Learned counsel further submits that demand of Service tax calculated on the basis of accrual of royalty in the books of accounts is liable to be set aside; liability to discharge Service tax of book adjustment became taxable with effect from 16.05.2008; for a period prior to 16.05.2008 accrued royalty cannot be taxed. He relies on the following cases: • GECAS SERVICES INDIA PVT. LTD- 2014 (36) S.T.R. 556 (Tri. - Del.) • SEMPERTRANS NIRLON (P) LTD- 2019 (20) G.S.T.L. 560 (Tri. - Mumbai) 5. Coming to the demand in respect of commission received from M/s Greg Norman Division for identifying and negotiating with Indian exporters under "Business Auxiliary Service", learned Counsel submits that the subject services are provided by the appellant and payment was received in convertible foreign exchange and services are used outside India; even though the services are undertaken in India the finding of such activity is communicated to the foreign entity for a decision making; and thus services are being used outside India; in view of ....
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....etational issues. 9. Shri Sidharth Jaiswal, Joint Commissioner, assisted by Shri Harish Kapoor Superintendent, Authorised Representative for the Department reiterates the findings of OIO. He takes us through the definition of Intellectual Property Rights(IPR) Service and Notification No.18/2004 dated 10.09.2004 and submits that from 18.04.2006, it shall be treated like the appellant is a service provider and as such leviable to Service tax. He further submits that though the appellant contend that the taxable event occurred much before the imposition of levy, it is clear from Para-5 and a statement of Shri Vishnu Bhagath, Director of the appellant that the facility of continuous use was made as part of the renewal of the agreement which was in force upto 2012; he submits that in view of point of Taxation Rules 2011, the service shall be treated as having been provided each time when a payment in respect of such use or benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier. He submits that though the Rules came into effect in 2011, they can throw a light incase of disparity/confusion in the previous period. He submits....
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....hat technical know-how, even as per the submissions of the appellants, encompasses patented/ patentable drawings, designs etc. and therefore, it cannot be held that as the technical know-how is not registered in India, it cannot be taxable under IPR; Department also argues that though the Agreement was before the imposition of levy, the payment continued periodically and in terms of Point of Taxation Rules, 2011; each time the payment is made, the service is considered to have been rendered. 14. We find that it will be beneficial to go through the agreement in understanding the nature of the service. We find that the contract dated 1st March, 1995 has, inter alia, the following clauses: 1. Subject to the terms and conditions herein contained, the LICENSOR shall provide to the LICENSEE: data, documentation, drawings and specifications relating to inventions, designs, formulae, processes and similar property (hereinafter referred to as "KNOWHOW"). 2. The LICENSOR hereby grants to the LICENSEE, subject to limitations and restrictions contained herein, the non-exclusive, non-transferable right to utilise the technology in the manufacture and distribution of the PRO....
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....he appellant concerning these respective license agreements, which are on record, we find that they do not anywhere say that they are the trademarks, designs, patents or other similar intangible property which are covered by any Indian law on the subject. However, it is clear that under these transfer agreements the appellants have been given the right to assemble or manufacture various contracted products and the right to use or otherwise dispose of such products which is evident from the Clause 2.1 of the respective agreement(s). The contents of the Clause 2.1 of the License Agreement between ABB Sace S.p.A. Milano-Italy (Licensor) and the appellants (Licensee), are being reproduced below for making the scope of the subject agreement(s) more clear: - "CLAUSE 2 - LICENCES 2.1. Scope Licensor grants Licensee under Information and Intellectual Property Rights (if any) : (a) a non-exclusive right to assemble or manufacture the Contract Products in the Assembling or Manufacturing Territory; (b) a non-exclusive right to use, sell or otherwise dispose of the Contract Products assembled/manufactured under this Agreement in the Sales Territory.....
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....ns 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-S.T., dated 10-9-2004)." 6.7.1 From the contents of above Para 9 of C.B.E. & C. Circular dated 10-9-2004 it is clear that the wordings "under any law for the time being in force" means the laws as applicable in India. It clarifies that IPRs covered under Indian Law in force alone are chargeable to Service Tax. It further says that IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services of 'Intellectual Property Services'. Revenue has not been able to prove in any manner that right to any of the intangible properties (by whatever name they call the same i.e. either documents or designs, instructions, catalogues, drawings, product software, testing specification, symbol numbering system, technical knowho....
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....llectual property can be referred as trade secret. It further says that trade secrets are not protected by law in the same manner as trademarks or patents. It states that trade secret is protected without disclosure of secret. But we do not find any support to the Revenue from this decision [IFFCO v. CCE, Bareilly (supra)] of CESTAT, Delhi. Revenue has also referred to CESTAT, Chennai's decision in the case of Suolificio Chennai (supra) where it has been held that transfer of trademarks and drawings, prima facie covered under 'Intellectual Property Service'. Again we do not find any assistance to the Revenue from this decision because firstly it is on the subject of Consulting Engineer Service and secondly we do find that the subject matter(s) of the agreement(s) between the foreign companies and the appellants in the present case are not covered under any Indian law concerning Intellectual Property Rights, which is the basic ingredient of the definition of 'Intellectual Property Right' in Section 65(55a) of Finance Act. We again state that whatever is being transferred even if it is the design or drawings or other document or technical know-how, this has to be first covered under ....
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.... under any law for the time being in force, but does not include copyright. 4.1 Short question to be decided is whether the transfer of technical 'know-how' received by the appellant is a service which may be categorized under "Intellectual Property Right Services". We find that the definition of Intellectual Property Right must be satisfied to term the services received by the appellant as Intellectual Property Right Services. We find no clue at all in the records as to which type of Intellectual Property Right is being assigned to the "Technical know-how" received by the appellant. It is obvious from the definition of Intellectual Property Right that the right has to be a specific Right under a specific Law. Examples are given under the definition such as the Trade Mark which is a right provided under "Trade Marks Act". Similarly the right mentioned as 'design' in the definition is a right under the "Design Act". Therefore we find that the technical know-how received by the appellant and the royalty payment made by the appellant to Unisys is nowhere established to result from the use of any Intellectual Property Right. 4.2 We may further go on to add that the In....
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....erning trade secrets/confidential information in India and therefore, the rights obtained by the appellant does not constitute intellectual property right as defined in law. Secondly, it is also very clear from the said Circular that a permanent transfer of intellectual property right does not amount to rendering of service. In the present case, the appellant has become a co-owner of the intellectual property which would mean that the transfer is permanent. Therefore, the transaction does not come under the purview of Section 65(55b) of the Finance Act, 1994." 16. The Tribunal in the case of Lurgi International Services Pvt. Ltd. 2020 (34) GSTL 507 (Tri. Hyderabad) held as follows: 7. As regards post 18-4-2006, we find that the demand has been raised under the category of Intellectual Property Rights services under the Finance Act, 1994, by recording that the said technical knowhow which has been given by the Foreign Company is their proprietary interest, and though it is not registered under Patents Act, 1970, the service tax liability arises on interpretation of definition of intellectual property services. 8. We find that the issue is no more res integra as ....
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....d the teachings of the patents on payment of royalty. It is also alleged in the show cause notice that the appellant was receiving know-how during the disputed period. However, from the agreement it is noticed that there is no evidence of continuous providing of information, know-how in relation to the manufacture. Further, it is not disputed that the appellant was manufacturing and selling products in the brand names, Pyricontin, Diacontin, Fecontin, Metocontin, Morcontin, Nitrocontin, and Unicontin which are claimed to be registered brand names of the appellant-company. In other words, they are not using the brand name of Mundipharma A.G. Switzerland. Receipt of know-how appears to be a one time affair. There is no evidence that their know-how is supplemented by Mundipharma A.G. Switzerland. Therefore, we are in agreement with the submissions on behalf of the appellant that royalty payment in the form of deferred payment for know-how received in 1990. Whether payment for such services rendered is made in one lump sum or made in instalments or based on quantum of sale by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. Fr....
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....ification Services". We find that Tribunal in the case of Hindustan Petrochemical Corporation Limited (supra) held that: 2. The appellant submitted that for an activity to be classifiable under the category of "Technical Inspection and Certification Service", the ingredients provided under Section 65(108), (109) of the Finance Act, 1994 read with Section 65(105)(zzi) of the Finance Act, 1994 which reads as follows needs to be satisfied. Section 65(108): "technical inspection and certification" means inspection or examination of goods or process or material or information technology software or any immovable property to certify that such goods or process or material or immovable property qualifies or maintains the specified standards, including functionality or utility or quality or safety or any other characteristic or parameters, but does not include any service in relation to inspection and certification of pollution levels"; Section 65(109): "technical inspection and certification agency" means any agency or person engaged in providing service in relation to technical inspection and certification"; 65(105)(zzi) to any person, by a technical in....