pri GST on licensing services for right to use ‘system’ & ‘system property’ GST on licensing services for right to use ‘system’ & ‘system property’

Case Law Details

Case Name : In re Yum Restraunts (India) Pvt. Ltd. (GST AAR Haryana)
Appeal Number : Advance Ruling No. HAR/HAAR/R/2018-19/24
Date of Judgement/Order : 19/11/2018
Related Assessment Year :

In re Yum Restraunts (India) Pvt. Ltd. (GST AAR Haryana)

Q1. Whether the services provided under technology license agreement entered into by the applicant will qualify under service accounting code 9973 which provides for ‘temporary or permanent transfer or permitting the use of enjoyment of intellectual Property (IP) right in respect of goods other than information Technology software’ attracting GST @12% or under service accounting code 9983 which inter alia provides for franchise service taxable at the rate of 18%.

(a) Under service accounting code 9973 which provides for “temporary or permanent transfer or permitting the use of enjoyment of intellectual property (IP) right in respect of goods other than information technology software” as provided under clause (c) of entry 5 os schedule II taxable at the rate of 12% in terms of serial number 17 of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
OR

(b) Under Service accounting code 9983 which inter -alia provides for franchise service taxable rate of 18% in terms ofNotification No. 11/2017 -CT (Rate) dated 28.06.2017.

Answer 1: classification code/heading 998396 does not cover the activity of licensing right to use trademarks and franchises, as the same is covered vide classification code/chapter heading 997336. Further, Group 99733 covers Licensing services for the right to use intellectual property and similar products. Therefore, licensing services: for right to use the “system” and “system property” in respect of which advance ruling has been sought in the instant case [even if “marks'” have been taken out of arnbit of this advance ruling due to reasons that there is separate agreement for right to use the same this agreement does not cover right to use “marks”), being right to use intangible property which is similar to copyright, patents, trademarks, designs, which is also capable of being possessed, transferred and their right to use can be licensed, merits’ classification under the group 99733.

In terms of clause (c) of pare 5 of Schedule Il.of the Central Goods and Service Tax Act, 2017, the impugned activity right to use “system” and “system property” is right to use intellectual property which merits classification under code 9973′ [Serial number 232′ (for heading 9973)& 250 (for group 99733) of annexure to ‘Notification No.11/2017-CT dt.28.06.17] and the same is covered vide serial number 17(i) of Table to the said notification, chargeable to CGST @ 6% and. SGST @ 6%

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, HARYANA

1.  Mis Yum ReStrauntS (India) Pvt Ltd., ‘Tower-Di Global. Business Park, 12th Floor, MG Road, Gurugram, Haryana[hereinafter referred to as the “ApPlicantl, is the owner of various tradernarks, service marks and. trade ‘names and has a comprehensive restaurant system for the preparation, marketing and sale of certain quality-food, products under the various trademarks Owned by them.

2. The Applicant has entered into a technology license agreement with its’ franchisee (herein called as the Licensee) across India, wherein’the Applicant haS granted the Licensee the right to use the system,. the system property and marks for the term, solely in connection with the conduct of butinesS at the outlet and subject to terms and conditions of the agreement.          “

3. The aforesaid three rights granted to the Licensee are detailed below:

a. Right to. use the .Systems-‘The System is a comprehensive restaurant system for retailing of a limited menu of uniform and quality food products, with emphasis ‘on prompt and courteous behavior and wholesome atmosphere. The System is meant ‘for providing standards and policies to’ Licensee’s for uniform operatiOn of all restaurants within, the System. These includes but are not limited to, serving designated food and beverage products; the use of only prescribed equipment and building layout and design, strict adherence to designated food and beverage specification’s and to prescribed standards of quality, service and cleanliness in restaurant operations.,

b. Right to use System Property-   –

i.-The term System Property has been d:efiried to mean the contents of , the manuals and all other knowhow, information, specification, Systems and: data used by the’AppliCant or in respect of the System.

ii. The tern Manual has’ been defined to mean the manuals, notices and correspondence published or issued from time to time -by the Applicant in any form, Containing the standards and other requirements, rules, procedures and guidelines relating to the System.

iii. The term Standards has , been defined to Mean the standards, specifications and other—requirements of the System as determined, changed or added to by the- Applicant from time to time including without limitatiOn the standards, specifications and other requirements related to the ‘preparation, marketing sale of the approved products, customer service procedure,. the design, decor and fitout of the outlet, the equiprnent at the outlet and the content, quality and use of advettising and promotional materials.

Programme and the like
253 997333 Licensing services for the right to reproduce original art works
254 997334 Licensing services for the right to reprint and copy manuscripts, books, journals and periodicals
255 997335 Licensing services for the right to use research and development products
256 997336 Licensing services for the right to use trademarks ‘and franchises…      .
257 997337 Licensing services for the right to use minerals including its exploration and evaluation
258 ‘ 997338 Licensing services for right to use other natural resources including telecommunication spectrum
259 997339 Licensing services for the right to use other intellectual property products and Other resources nowhere else classified

and

296 ‘ Heading 9983 Other professional, technical and business services
297 Group 99831 Management consulting and management services;            .

information technology services –

305 Group 99832 Architectural services, urban and land planning and landscape architectural: services
314 Group 99833 r Engineering services

,

324 Group 99834 Scientific and other technical services    ..
334 Group 99835 Veterinary service’s      ,           <
338 Group’ 99836 Advertising services and provision of advertising space or time
345 Group 99837 Market research and public opinion polling services
348 Group 99838 Photography and videography and their processing

services .

356 Group 99839 Other professional, technical and business services
357 998391 Specialty design services including interior design, fashion design, industrial-design and other specialty design services,
358 998392 Design originals
359 998393 Scientific and technical consulting services
360 998394: Original compilations of facts or. information
361 998395 Translation and interpretation services
362 998396 Trademarks and franchises
363 998397 Sponsorship services and brand promotion services
364 998399

‘            .

Other professional, technical and business services nowhere else classified.

12. Further, explanation notes to classification of services, contains following clarification in respect of classification code

997336.Licensing services for the right to use trademarks and franchises

This service code includes licensing services for the nghtto use trademarks and to operate franchises.

In respect of classification, code 998336, the explanation notes contain following clarification.

998396 Trademarks and franchises

This service code includes original trademarks and franchises, ige. the legally registered ownership of a certain brand name.

Note : These products aie produced on own account with the intent of deriving benefits

from allowing others to use these trademarks or franchises.

This service code does not include :

– licensing services for the right to usktrademarks and franchises, cf. 997336

– research and development work leading to a product or concept that is being trademarked, cf. 9981

– advisory services for the organization of marketing channels (including franchises), of 998311

– managemeniservices for rights to trademarks and franchises, cf. 998599:

Thus, from the above, it is amply clearing that classification code/heading 998396 does not cover the activity of licensing right to use trademarks and franchises, as the same is covered vide classification code/chapter heading 997336. Further, Group 99733 covers Licensing services for the right to use intellectual property and similar products. Therefore, licensing services: for right to use the “system” and “system property” in respect of which advance ruling has been sought in the instant case [even if “marks'” have been taken out of arnbit of this advance ruling due to reasons that there is separate agreement for right to use the same this agreement does not cover right to use “marks”), being right to use intangible property which is similar tocopyright, patents, trademarks, designs, which is also capable of being possessed, transferred and their right to use can be licensed, merits’ classification under the group 99733.

13. When the classification code for the said services stand decided under classification code 9973, the same also stands covered vide serial number 17′ of Notification 11/2017-CT dt.28.06.2017, for the purpose of levy of appropriate rate of GST, which is es under:

S . No. Chapter,
Section or
Heading
Description of Service Rate (per cent.)

.

 

Condition

 

(1) (2) (3) (4) (5)
17 Heading 9973 (Leasing or rental services, with or without operator) (I) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software. 6
(ii) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information Technology software.

[Please refer to Explanation no. (r)]

9
(iii) Transfer of the right to use any
goods for any purpose (whether or • not for a specified period) for cash, deferred payment or other valuable consideration.
Same rate of central tax as on supply of like goods involving transfer of title in goods
(iv) Any transfeeof right in goods or , of undivided share in goods wiThout the transfer of title thereof. central tax as on supply of like goods involving transfer of title in goods

14. In view of the above, this authority is of the opinion that the subject activity is covered vide serial number 17(i) of the Notification 11/2017-CT(Rate) dated 28-06-2017, as “Temporary or permanent transfer or permitting the use or enjoyment of.’ intellectual property (IP), right in respect of goods other than information technology software” and leviable to CGST @ 6% and SGST @ 6%.

RULING;

15.. In terms of clause (c) of pare 5 of Schedule Il.of the Central Goods and Service Tax Act, 2017, the impugned activity right to use “system” and “system property” is right to use intellectual property which merits classification under code 9973′ [Serial number 232′ (for heading 9973)& 250 (for group 99733) of annexure to ‘Notification No.11/2017-CT dt.28.06.17] and the same is covered vide serial number 17(i) of Table to the said notification, chargeable to CGST @ 6% and. SGST @ 6%

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