TaxTMI 
TaxTMI 
2026 (8) TMI 1512
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....U manufacturing rubber-industry equipment and accessories, entered an Asset Sale & Purchase Agreement dated 25.09.2008 with M/s. Carbrasive Pty Ltd., Australia ("Carbrasive"), for Plant and Equipment, Raw Material and Stock, Customer Records, Know-How, Supplier/Vendor Records, Domain Names and Brand ("Assets"), with allocation of purchase price of USD 4,00,000 for Plant and Equipment, USD 1,50,000 for Know-How and Non-Compete, and USD 1,00,000 for Brand, Domain Name and Customer Records, thus amounting to a total price of USD 6,50,000. 3. The Appellant paid customs duty only on the Plant and Equipment component, treating the balance USD 2,50,000 as consideration for sale of Assets, outside the scope of service tax. 4. Pursuant to audit, the Department was of the view that the payment of USD 2,50,000 was excluded by the appellant itself treating it to be of the nature of service and that the continued know how royalty payable for five years from the date of their first gross sales evidenced a non-permanent transfer and that therefore the aforesaid payment was towards "Intellectual Property Right Service". The Department issued an SCN C. No. V/15/IPR/15/139/2013 dated 07.03.201....
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....ach. 7. Shri. M. Deepak Krishnan alongwith Ms. Krithika Jaganathan, Ld. Advocates, appeared for the Appellant and contended as under: a) Drawing attention to the Asset Sale & Purchase Agreement dated 25.09.2008 annexed to the Appeal and various clauses, inter-alia, Recitals (Clause A & B), Clause 2.1, 2.2, 4.6, 5.2(b), 7.2 and Schedule 2 of the Agreement, it was argued that the Agreement show absolute, unconditional transfer of title, free of encumbrances with Carbrasive barred from further use or disclosure of the Know how post completion. b) CBIC Circular No.80/10/2004-ST states that permanent transfer of IPR is not 'service'. Decisions in Suzlon Energy Ltd. v. CCE, Pune-III, 2025 (12) TMI 716 - CESTAT Mum, Thermax Ltd. v. CCE, Pune-I, 2013 (8) TMI 119 - CESTAT Mum, and SKOL Breweries Ltd. v. CCE, Bangalore, 2020 (11) TMI 391 - CESTAT Bang were relied on. c) Clause 7.3 acknowledges that royalty is part of the consideration payable for the sale of the know how. d) Without prejudice, Know-How is not a recognised IPR under Indian law and hence is not taxable under the category of IPR rights. Reliance is placed on Hyundai Motor India Ltd., 2019 ....
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....ration and non-disclosure in ST-3 returns justify the extended period. It is prayed that the impugned order be upheld. 9. We have heard the rival submissions and carefully perused the materials available on record. ANALYSIS 10. The following issues arise for our determination: A. Whether USD 2,50,000 represents consideration for a permanent sale of Assets, or for taxable IPR Service under Sections 65(55a)/65(55b)/65(105)(zzr) of the Finance Act, 1994. B. Whether Know-How is an "intellectual property right" recognised under any law for the time being in force so as to satisfy the mandate of Section 65(55a). C. Whether the five-year Know-How Royalty under Clause 7.3 negates the permanency of the transfer. D. Whether the extended period of limitation under Section 73(1) proviso was rightly invoked. E. Whether penalties under Sections 77(1)(a), 77(2) and 78(1) are sustainable, and whether Section 80 applies. 11. We proceed to analyse the first two interlinked issues jointly. Section 65(55a) of the Finance Act, 1994, as it stood during the period in dispute, defined "Intellectual Property Right" to mean any right to intangible pro....
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....ntax 153 (SC). The ratio of these decisions, that only IPRs recognised under Indian law are exigible to tax under this head, squarely applies to the facts at hand and is sufficient, by itself, to displace the demand insofar as it relates to Know-How. Clearly, the first requirement of the two cumulatively required to be satisfied as noticed above in order to fall within taxable IPR Service, namely, the property in question must be a right recognised as intellectual property under a law in force in India, being not satisfied, we find ourselves in agreement with the appellant's contention that when Know how is not recognized as an intellectual property right under any law in India, that alone becomes fatal to the survival of any demand of service tax thereon. 13. On the second requirement, CBIC Circular No. 80/10/2004-ST dated 17.09.2004 clarifies that a permanent transfer of intellectual property right does not amount to rendering of service, since the transferor ceases to remain a "holder" of the right and cannot thereafter be said to be permitting its use or enjoyment. This principle has been consistently applied by this Tribunal, including in Thermax Ltd. v. CCE, Pune-I, 2013 (....
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....on Date, and its continued payment over five years does not, by itself, detract from the permanency of that transfer. 16. Furthermore, it is noted that even the Revenue's case, as regards the periodicity of payment relates only to Know-How, valued at USD 1,50,000 under Schedule 3 of the Agreement (along with Non-Compete). No corresponding periodical payment is shown to have been stipulated in respect of Brand, Domain Name and Customer Records, valued separately at USD 1,00,000. The demand of service tax on the entirety of USD 2,50,000 under the SCN, OIO and Impugned Order, without any such distinction, is accordingly unsustainable even on the Revenue's own premise and logic. 17. As regards the reliance placed by the lower authorities on the Appellant's purported treatment of USD 2,50,000 as a "service" for the purposes of assessable value under Section 3(5) of the Customs Tariff Act, we are of the view that, even if that were to be so, the classification adopted by an assessee for one levy, i.e., customs duty on imported goods, is not determinative of, and cannot by itself override, the correct classification under a distinct statute such as the Finance Act, 1994 ....