The Chennai Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that intellectual property rights should be registered under Indian law, for the purpose of their taxation under the Indian Fiscal Statutes. Since the permission granted to Real Image Media Technologies (appellant-sound production company) for the use of the imported equipment of DTS to create soundtracks does not amount to a transfer of technology, no service tax is liable on a reverse charge basis.
Finding that the intellectual property in question was not registered in India, the Tribunal held that they do not constitute ‘intellectual property rights’ within the meaning of Section 65 (55a) of the Finance Act, 1994.
Since the related services are not ‘intellectual property services’ within the meaning of Section 65 (55b) of the Finance Act, 1994, the Tribunal ruled that there is no import of services which were liable to tax on a reverse charge basis under Section 66A of the Finance Act, 1994, read with Rule 2(1) (d) (iv) of the Service Tax Rules, 1994.
The Division Bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) negated the opinion of the Revenue Department that the IPRs in question are very much covered under the Indian law in force, claimed on the basis that the use/transfer of technology is covered under ‘the Patent Act, 1971’ and the trademarks are covered under the ‘Trade Marks Act, 1999”.
The Bench referred to the statement of the Revenue Department as bald and entirely unsupported by evidence, as the Adjudicating Authority considered the use or transfer of technology to be covered by the Patent Act without commenting on the registration of the patent itself under that Act. The Bench therefore allowed the appeal and quashed the order for service tax demand.
Briefly, the appellant rendered sound recording and production services for which it collected fees from its customers. In the course of this business, under agreements with DTS Inc. USA, the appellant appointed a non-exclusive provider of production services for films produced and released in India. Under this agreement, the appellant is permitted to use the imported equipment of DTS to create DTS soundtracks. As a consideration for this, the appellant paid a licence fee to DTS for every soundtrack, with permission to use some technology and some trademarks of DTS.
The Adjudicating Authority opined that the primary purpose of the Agreement was the transfer or use of DTS technology, equipment, and trade marks. He opined that the outward remittances to DTS were not like rental charges for the equipment imported, and concluded that this was an import of services which were liable to tax on a reverse charge basis under Section 66A of the Finance Act, 1994, read with Rule 2(1) (d) (iv) of the Service Tax Rules, 1994. He thus confirmed the demand of service tax together with interest under Section 75 and penalty under Section 78.
Appearances:
Advocate R. Anish Kumar, for the Appellant/ Taxpayer
Additional CIT O.M. Reena, for the Respondent/ Revenue