service tax on intellectual property right

1.      Intellectual property right

1.1.     Meaning of intellectual property:

The Term ‘intellectual property right’ has not been defined in new section of 65B Interpretation of finance act 1994. In old section 66(55a) defines “intellectual property right” as under –

‘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.

Further, as per old section 66(55b) defines ‘intellectual property service’ as (a) transferring, temporarily; or (b) permitting the use or enjoyment of, any intellectual property right;’;

 As per MF(DR) circular no. B2/8/2004-TRU dated 10-9-2004 - Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e.IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services.

As per circular no. 80/10/2004-S.T dated 17.09.2004, 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.

1.2.     Declared service

As per section 66E(c) of the act, temporary transfer or permitting the use or enjoyment of any intellectual property right would be constitute as declared service.

1.3.     Mega Exemption Notification

As per entry no. 15 of mega exemption notification 25/2012-ST dated 20-6-2012, Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works or exhibition cinematograph films in a cinema hall or a cinema theatre would be exempt from service tax.

Vide Finance act, 2013, temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films was fully exempt so far; now, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theatre.

Cess paid on import of technology: As per Notification No.14/2012 - Service Tax, dated 17.03.2012, the taxable service involving import of technology would be exempt from so much of the service tax leviable thereon under section 66B of the said Act, as is equivalent to the amount of cess payable on the said import of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

1.4.     Point of taxation of IPR

As per Rule 8 of point of taxation rule, 2011, in respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount is not ascertainable at the time when service was performed. In such case, point of taxation would be date of payment or invoice is issued by provider, whichever is earlier.

1.5.     Clarification from CBEC

Production of alcoholic beverages under the Brand Licensing Arrangement (C.B.E &C letter 249/1/2006-CX 4 dated 27.12.2006) - Many alcoholic beverages bear brand names. The Brand Owners (hereinafter called the BO), which includes Indian subsidiaries of International brand owners, hold the intellectual property rights over such brand names. The Licensee (who holds the license by the State Government to manufacture such alcoholic beverages) manufactures alcoholic beverages under authority to use such brand name granted by the BO. The BO may also provide technical staff/assistance to maintain required quality. The alcoholic beverages, so manufactured are directly sold (after paying State excise duty) by license/manufacturer and not with the BO, who is paid an agreed sum for grant of permission to use such brand name and the technical know-how. In such cases the BO provides taxable service, namely ‘Intellectual Property Service’ to the licensee/manufacturer. The tax is chargeable on the gross amount charged by the BO from the licensee/manufacturer.

1.6.     Cases relating to IPR

·         Hero Honda Motors v. CST (2012) 35 STT 417 (CESTAT) - permission given to oil company to use his trade mark on oils, lubricants and greases manufactured by the oil company would IPR service.

·         CIT v. Sun TV Ltd (2007) 161 Taxman 351 (Del HC) – right to telecast TV program in foreign countries is ‘sale of goods’.

·         SPS Jayam & Co V. Registrar, TNTST (2004) 137 STC 117 (Mad HC) – Trade mark is intangible goods and transfer of right to use trade mark is deemed sale.

·         Kreem Foods v. State of Kerala (2009) 24 VST 333 (Ker HC) – Trade mark is goods and allowing franchisee to use trade mark is transfer of right o use goods and hence is deemed sale.

CIT v. Giza Impex (2008) 166 Taxman 30 (Mad HC) – Master copies of film songs and music are ‘goods’.To join google group regular updates or query on service tax send mail to handbookonservicetax@gmail.com

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