TaxTMI 
TaxTMI 
2026 (8) TMI 796
X X X X Extracts X X X X
X X X X Extracts X X X X
....Infosystems Ltd. (herein after referred as the Appellant) are engaged in manufacturing of Automatic Data Processing Machines, viz, Computers and units thereof. The Appellant was required to install the Operating Software (OS) in the computer system manufactured or sold by it. In this regard, the Appellant procured license for pre-installation of operating software from Microsoft Corporation against the payment of royalty. For this purpose, for the manufacturing facility at Pondicherry, the Appellant has entered into a Microsoft Desktop Operating System License Agreement for OEM Customers dated 01.08.2006 (hereinafter referred to as "the License Agreement") with Microsoft Licensing, GP, located in USA. During the period from 2005-2006 to 2008-2009 (upto 15.05.2008), the Appellant had paid royalty to Microsoft Corporation (hereinafter referred to as "Microsoft") towards such license to install operating software in the computers. 2.1. In terms of the Agreement, the Appellant has been granted a license providing for the following: (a) the right to Pre-install tile Product Software (Mainly Operating Systems like Windows Vista, XP Professional etc.) on a HCL System; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ULA, the end user acquires the right to use the software. The system of licensing software operates in the above manner. 2.4. The Appellant held the view no taxable service occurred and no service tax was payable, as there was no transfer, temporarily, or permitting the use or enjoyment of any of the IPRs as defined under section 65(55a) of the Finance Act, 1994. Accordingly, the Appellant has not paid service tax on the Royalty paid to Microsoft. 2.5. The audit conducted by CERA officers have observed that the Appellant have paid royalty and service tax was liable to be paid, as the activity of affixing Microsoft in Windows could be treated as trademarks, which falls under IPR Service. 2.6. On the basis of the above said allegation, a show cause notice dated 21.10.2010 was issued to the Appellant. The Notice made the following statements and allegations: (a) that the Appellant paid certain amount as Royalty to Microsoft for using their product: (b) a simple assertion without providing any basis that the Appellant is liable to pay service tax on reverse charge basis under the category of IPR Service; (c) that the transaction may not be covered un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on and Revenue Neutrality. Ignoring the submissions made by the Appellant, the Adjudicating Authority partly confirmed the demand proposed in the show cause notice dated 21.10.2010 along with the interest and penalties. The impugned order dated 31.10.2018 dropped the demand for the period up to 16.04.2006. The demand has been confirmed by invoking extended period of limitation for the period from 17.04.2006 to 16.05.2008. 2.8. Aggrieved against the confirmation of the demands of service tax along with interest and various penalties, the Appellant has filed this appeal. 3. The submissions made by the Appellant are summarized as under: A. In the Show Cause Notice no specific intellectual property right/intangible property identified in respect of which alleged service was provided -show cause notice as well as the impugned order are not sustainable A1. It is submitted that in the definition of intellectual property rights all and every kind of intangible property is not included and further, only such intangible property as is recognized under any law for the time in force in India are included. Copyright has been specifically excluded. A2. The Show C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 65(55a) of the Finance Act, 1994 took place in the present case. Therefore, no taxable service occurred and no service tax was payable. B. Demand is completely time barred ➢ The complete facts in the knowledge of the department B1. The demand has been confirmed for the period from 16.05.2006 onwards and undisputedly audit was conducted on 09.03.2007 and 10.03.2007 and first letter No. 413/2007 dated 29.03.2007 raising the issue was issued and thereafter continuously correspondence took place as stated in the above dates and events Table. So, there was no dearth of knowledge for the department about the alleged transaction to allege that the Appellant was suppressed the information. Once an information is completely in the knowledge of the department during the normal limitation period, it is illogical to allege that the information was suppressed by the Appellant in any manner. B2. The demand confirmed for the period up to 16th May 2008 for which due date for filing of return was 25th October 2008 and the normal period of limitation of one year period from such date expired on 25th October 2009, however, the Show Cause Notice was issued ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Flavours Pvt. Ltd. Versus Commissioner of Customs (Port), Kolkata FINAL ORDER NO. 75399 / 2026 CESTAT KOLKATA (para 11) (f) M/s. Saha Civil Construction Private Limited Versus Commissioner of C.G.S.T. and Central Excise, Kolkata, FINAL ORDER NO. 75677/ 2026 CESTAT KOLKATA (para 11) (g) M/s. Srinath Builders & Housing Company Pvt. Ltd. Versus Principal Commissioner of Central Goods and Service Tax, Guwahati, FINAL ORDER NO. 75842 / 2026 CESTAT KOLKATA (para 17) (h) M/s Maharani Construction Versus Commissioner of CGST & Central Excise, Ranchi FINAL ORDER No. 77514/2023 CESTAT KOLKATA (para 12) C. The Alleged IPR was not covered by definition of Section 65(55a) of the Finance Act C1. Without prejudice to the above submissions, it is further submitted that the alleged IPR was specifically excluded from the definition of IPR as provided under Section 65(55a) of the Finance Act. C2. It has been the submission of the Appellant that the owner of copyright in the software Windows product was Microsoft and Microsoft by license granted permission to the Appellant to pre-install such software in computers manufactured by the Appellant. So....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y are liable to pay service tax under RCM basis. 5. Head both sides and perused the appeal documents. 6. We find that the demands have been raised and confirmed in the impugned order under the category of 'Intellectual property service'. For ready reference, the relevant provisions from the Finance Act, 1994 containing the definitions are extracted below: "Section 65(55a): - "intellectual property right" means 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" "Section 65(55b) - "Intellectual property service" means,- (a) transferring, temporarily; or (b) permitting the use or enjoyment of, any intellectual property right." "Section 65 (10) (zzr): the Taxable Service means service provided to any person, by the holder of intellectual property right, in relation to intellectual property service" 6.1. From the definition of 'intellectual property rights' extracted above, we find that all and every kind of intangible property are not liable to service tax under the said category. Only suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar proposal or finding as to what is the intellectual property rights involved in the transactions, i.e., whether it is a patent, copy rights, trade mark or design or any other category of intellectual property rights. When Service Tax is confirmed under the taxable service category of 'Intellectual Property Right Services', the order confirming the demand should clearly classify the transaction under one or more of the 'Intellectual Property Rights' which are covered under 'Intellectual Property Right Services' law. The Board's Circular issued on 17-9-2004 in this regard makes it abundantly clear that the 'Intellectual Property Right Services' covered under the Service Tax laws should be in respect of such services in respect of which laws have been made in India and such laws should cover the 'Intellectual Property Right Services' involved and only in such a situation, demand for Service Tax can be raised whenever there is a transfer of 'Intellectual Property Rights' by the holder of the 'Intellectual Property Right' to the person who receives or uses the Intellectual Property Rights. In the impugned orders we do not find any such findings by the authorities." 6.5. We find tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....understood to be as absolute authorisation to have ownership. Juxtaposition to this in the instant case the party has just been granted license to use the computer-software without having absolute control over the same. xxxxxxx I find that this necessarily means that the party does not have exclusive hold over the soft-ware and the same, even after the grant of license, remains the sole property of Microsoft. The party was licensed to use the software but was not the holder of the copy-right. I find that it is the true appreciation of the fact that the party is not the holder of the copy-right". 6.8. Once the above finding is accepted, then it is axiomatic that Microsoft was having copyright and Microsoft transferred temporarily enjoyment of such copyright to the Appellant and as such copyright is excluded from an IPR under Section 65(55a), such temporary transfer is also not a taxable service. We find that the Ld. Adjudicating Authority has attempted to distinguish the ratio of the decision in the matter of M/s Fluent India Pvt. Ltd. vs CCE, Pune-I [2016(42) STR 340]. In that case also the India Company "Fluent India Pvt. Ltd." was that: (a) The Foreign par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the old entry was not modified and the new entry was created covering in its scope, the transaction/activity, which is in question, therefore, such transaction/activity was not covered under the earlier entry as held in the case of Suntec Business Solutions Pvt. Ltd. V. C.C.E., Cus. & S.T., Thiruvananthapuram, 2017 (51) S.T.R. 446 (Tri. - Bang.) The relevant portion of the said decision is reproduced below: 7.1. We find that the same view has been taken in the following decisions: (e) Schulmberger Asia Services Ltd. v. CST (2024) 15 Centax 238 (Tri. - Del.) upheld in Commissioner of Service Tax vs. Schulmberger Asia Services Ltd (2024) 15 Centax 239 (S.C.) (f) Commissioner of S.T., Kolkata Versus Vikash Construction Company 2020 (37) G.S.T.L. 344 (Tri. - Kolkata) (g) BOARD OF CONTROL FOR CRICKET IN INDIA V COMMR. OF S.T., MUMBAI 2007 (7) S.T.R. 384 (Tri.- Mumbai) 7.2. By relying on the ratio of the decisions cited supra, we hold that the Appellant has rendered Information Technology Software Service, which came into effect only w.e.f. 16.05.2008 and the said activity was not liable to service tax for the period prior to that. Accordingly, demandin....