Intas Pharmaceuticals Ltd Vs C.S.T.-Service Tax (CESTAT Ahmedabad)
Introduction: In the case of Intas Pharmaceuticals Ltd vs. C.S.T. – Service Tax, the issue at hand revolves around the taxability of service tax on technical knowhow transferred by Intas Pharmaceuticals Limited to a recipient in Singapore. The primary question addressed in this case is whether the technical knowhow is protected by Indian law, thus qualifying it for taxation under the category of “Intellectual Property Service.”
Detailed Analysis:
1. Background of the Case: Intas Pharmaceuticals Limited entered into an agreement with M/s Scigen, Singapore, wherein they agreed to transfer technical knowhow related to manufacturing and marketing two formulations. The appellant received consideration in US Dollars for this transfer. An audit objection was raised regarding the taxability of this transaction under the category of “Intellectual Property Service.”
2. Export of Service Issue: The audit’s view was that this service does not qualify as an “Export of Service” because the technology was used in Pune, India, and hence, did not meet the criteria of being an export. The appellant had already paid a substantial amount of service tax and interest.
3. Definition of Intellectual Property Right: To determine the applicability of service tax under “Intellectual Property Service,” the definition of “Intellectual Property Right” becomes crucial. The law provides that it includes rights to intangible property such as trademarks, designs, patents, or similar intangible property. Importantly, the definition specifies that these rights should be protected under the law.
4. Protection Under Indian Law: The pivotal issue was whether the transferred technical knowhow was protected under Indian law. The appellant argued that the technical knowhow was not a taxable service under “Intellectual Property Service” as it was not protected or recognized by Indian law. They relied on Circular No. 80/10/2004-ST, which clarified that services related to intellectual property rights (IPRs) would be taxable only if those IPRs were covered under Indian law.
5. Tribunal’s Decision: The Tribunal’s decision rested on whether the technology transferred qualified as an Intellectual Property Right. The Tribunal referred to various decisions that emphasized that to be categorized for service tax under IPR, the right should have been registered with trademark or patent authorities under Indian law. In this case, the transferred technology was not registered, and therefore, the Tribunal ruled that no service tax was payable.
6. Setting Precedent: This case is significant because it upheld the principle that for a service to be categorized under “Intellectual Property Service” for tax purposes, the relevant intellectual property rights should be protected by Indian law. The case reaffirmed the importance of legal protection in the taxability of such services, ultimately setting a precedent for similar cases.
Conclusion: The Intas Pharmaceuticals Ltd vs. C.S.T. – Service Tax case serves as a clear illustration of the requirement for intellectual property rights to be protected by Indian law to qualify for taxation under the category of “Intellectual Property Service.” In this case, the lack of legal protection led to the conclusion that no service tax was payable on the transfer of technical knowhow. This decision highlights the importance of adhering to the legal framework when determining the tax liability for services involving intellectual property. It serves as a significant precedent for future cases involving similar issues in the realm of service tax.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal has been filed by Int as Pharmaceuticals Limited against demand of service tax for technical knowhow transferred by them to a recipient in Singapore wherein consideration was received in US Dollar.
2. Learned Counsel for the appellant pointed out that the appellant had agreed to transfer technical know-how to manufacture and market two formulations to M/s Scigen, Singapore vide agreement dated 17.06.2006 as amended on 20.08.2007. The appellants had transferred technology related documents and two vials of Cell Banks to M/s Scigen, Singapore at its facility located in Israel. The appellant received payment from M/s Scigen, Singapore in US Dollars. Under the agreement Scigen could use the technology to manufacture the products at any place in the world including its existing Pune (India) facility. During audit an objection was raised that since the said technology is used in Pune it does not become „Export of Service‟. The appellant had paid service tax of Rs. 74,99,857/- and interest of Rs. 51,34,290/-. The appellant claimed the refund of the said service tax and interest. The said refund claim was rejected on the ground that the said transfer of technology did not amount to „Export of Service‟ as the said service though sold to M/s Scigen, Singapore was used in the plant located at Pune (India) also. Learned counsel pointed out that they had transferred the agreed upon technology in soft copy to the registered office of M/s Scigen, Singapore and the agreement authorized M/s Scigen, Singapore to use the said technology anywhere including in India.
3. During the audit of the appellant premises in the month of September 2012, an objection was raised that the service provided by the appellant to M/s Scigen, Singapore was not „Export of Service‟. The audit was of the view that the said service is chargeable to service tax under the head of „Intellectual Property Service‟ w.e.f. 10.09.2004. Learned counsel pointed out that the technical know-how is not a taxable service under the head of „Intellectual Property Service‟. He pointed out that the relevant provisions for giving definition for the said service read as follows:
“a) Section 65(55a):
(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.
b) Section 65(55b):
(55b)”Intellectual property service means, –
(a)Transferring, temporarily; or
(b)Permitting the use of enjoyment of,
any intellectual property right
c) Section 65(105) (zzr) “taxable service” means any service provided or to be provided-
……
(zzr) to any person, by the holder of intellectual property right, in relation to intellectual property service.”
The appellant had paid the service tax along with interest consequent to the said audit objection. A show cause notice was issued to the appellant for rejection of the refund claim holding that the services claimed to have been exported to M/s Scigen, Singapore cannot be considered „Export of Service‟ as the same were not used „outside India‟. It was argued that the said services were in turn used by M/s Scigen, Singapore in the Bio-Technical Park, Pune Maharashtra (India). He further argued that the recipient of service M/s Scigen, Singapore is located outside India. The service has been provided to M/s Scigen, Singapore with liberty to use said technical know-how anywhere in India and the payment of service is received in convertible foreign exchange. In these circumstances, under rule 3(2) of Export of Service Rules, 2005, it qualifies as „Export of Service‟.
4. Learned counsel argued that the technology supplied by them does not fall under the category of Intellectual Property Right for the reason that the said technology is not protected by any law in India. He relied on the Circular No. 80/10/2004-ST dated 17.09.2004. The aforesaid Circular prescribed as follows:
“9. Intellectual property services (other than copyrights):
9.1 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 (except copyright) 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.”
He argued that the term „under any law for the time being in force‟ appearing in Section 65(55a) implies that the Intellectual Property Right should be protected under any Indian law in force and only then it become taxable service. He pointed out that the transfer of technical know-how is not protected or recognized by „Indian law‟ and therefore does not qualify to be an Intellectual Property Right. He argues that from the definition of IPR, it should be in the nature of a specific right like Patent or Trademark or Design under the Patent Act, Trademark Act or Design Act. He relied on the following decisions for this argument.
