Commissioner of Service Tax Vs McLeod Russel (India) Limited (CESTAT Kolkata)
Summary: The CESTAT Kolkata dismissed the Revenue’s appeal against the order dropping the Service Tax demand on royalty and licence fees paid by M/s. McLeod Russel (India) Limited to M/s. Borelli Tea Holdings Ltd., U.K., under an agreement dated 26.04.2004. The foreign company had granted the respondent a non-exclusive, non-transferable licence to use its patents and trademarks for manufacture/production of tea and export thereof, against royalty and/or licence fees calculated at 1.5% and 1% of net sales.
Revenue contended that the respondent had obtained Intellectual Property Rights and was liable to pay Service Tax under the Reverse Charge Mechanism. The Tribunal noted that the relevant trademarks and patents were not registered in India. Relying principally upon its decision in Munjal Showa Ltd. v. Commissioner of C.Ex. & S.T., Delhi (Gurgaon), the Tribunal held that for an Intellectual Property Right to fall within the taxable IPR service provisions under the Finance Act, 1994, the right had to be recognised under a law for the time being in force in India. The Tribunal reproduced and followed the reasoning that unregistered trademark, patent and other intellectual property rights were outside the scope of taxable IPR service under Section 65(105)(zzr) read with Section 65(55a) of the Finance Act, 1994.
