In this article, An attempt has been made to simplify GST liability on services related to Intellectual Property rights.
What is Intellectual Property Right:- The term ‘Intellectual Property Right’ (IPR) has not been defined in GST Law. MF(DR) circular No. B2/8/2004-TRU dated 10-9-2004 states as follows – Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill, etc.
Intellectual property rights are like any other property right. They allow creators, or owners, of patents, trademarks or copyrighted works to benefit from their work or investment in a creation.
The intangible nature of intellectual property presents difficulties when compared with traditional property like land or goods. Unlike traditional property, intellectual property is “indivisible”, since an unlimited number of people can “consume” an intellectual good without it being depleted.
IPR – Goods or Services IPR itself is a ‘Good’ but license to use IPR is a service’.
Permanent transfer of IPR is Goods: Intellectual Property Right is a property of a creator and if the creator permanent transfers the right on property, it is considered as a supply of Goods.
Temporary transfer of right to use IPR is Services:- The creator of IPR temporary transfers the right to use of any Intellectual Property Right ( IPR) is a supply of services. He may permit the use or enjoyment of IPR to others for consideration.
As per Para c of schedule II of CGST Act: Temporary transfer or permitting the use or enjoyment of any Intellectual Property Right (IPR) is ‘supply of service’
Transfer of IPR is Taxable under GST: – Both the permanent transfer of IPR and temporary transfer are subject to GST. Temporary transfer includes permitting use or enjoyment of IPR.
GST Rates of IPR :
|(a)||Temporary transfer of IPR (Other than Software )||Service||(6% CGST+6% SGST)||9973||Renting & leasing Services|
|(b)||Permanent Transfer of IPR||Goods||(6% CGST+6% SGST)||Any Chapter|
Services related to IPR can be broadly classified under the following headings:-
(a) Software Development services
(b) Franchise Service
(c) Copy right Service
GST liability on Software:- Software is a set of instructions that allows physical hardware to function and perform computations in a particular manner, be in word processor, web browser or the computer’s operating system.
Development of Software is service under GST: Development, design, programming, adaptation, up-gradation, enhancement, implementation of information technology software is a supply of service. ( Para 5(d) of Schedule II of CGST Act ).
Information Technology Software: Information technology software means any representation instructions, data, sound or image, including source code and object code recorded in machine-readable form, where a user is capable to manipulate and get interactivity of all these instructions using a computer or an automatic data machine or any other device or equipment.
The software in physical form is goods under GST: Though the CGST Act defines the development of software as ‘service’, software in physical form (branded as well as tailor-made), ‘Information Technology Software’ is ‘goods’ in Customs Tariff Act under heading 8523 80 20.
In Tata Consultancy Services v. State of Andhra Pradesh (2004) it has been held that canned software (i.e. computer software packages sold off the shelf) like Oracle, Lotus, Master-Hey, etc. are ‘goods’. The copyright in the program may remain with originator of the program, but the moment copies are made and marketed, they become ‘goods’.
In-State Bank of India v. Municipal Corporation 1997 it was held that ‘computer software’ is ‘appliance’ of the computer. It was held that it is ‘goods’ and octroi can be levied on full value and not on the only value of empty floppy.
Customized and non-customized software both are goods –( Infosys Technologies Ltd. v. Special Commissioner(2008))
GST Rates of Software
The GST rate (as goods) is the same as GST rate of development of software or licensing of software service.
GST Rates & HSN for Software as services:-Temporary transfer of IPR of software is service. The GST rate is 18% (9% CGST and 9% SGST/UTGST) or 18% IGST. Temporary or permanent transfer or permitting use or enjoyment of Intellectual Property Right (IPR) in respect of software falls under service group 99733.
GST Rates & HSN for Software as goods:- Permanent transfer of IPR of software is ‘goods’ and GST rate is 18% [9% CGST plus 9% SGST] or 18% IGST. The HSN classification is ‘Any Chapter’- Sr. No. 452P of Schedule III of Notification No.1/2017-CT (Rate) and 1/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 15-11-2017.
Place of Supply :
Place of Supply of Service of development of software and services on software is the location of recipient.
Software is intangible. It does not have a unique existence and can exist on different servers at any point in time. Hence, in case of service of development of software (development, design, and programming of information technology software) and services on software (testing, debugging, modification, etc. i.e. customization, adaptation, up-gradation, enhancement, implementation of information technology software), the place of supply is the location of recipient of service – CBIC circular No. 209/1/2018-ST dated 4-5-2018.
To be continued ………………..
Part II of the Article will cover GST liability on IPR of Franchise services & Copyright Services.
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