Bajaj Resources Limited Vs Commissioner of Central Excise and CGST (CESTAT Delhi)
The CESTAT New Delhi, in the case of Bajaj Resources Ltd. v. Commissioner of Central Excise & CGST, Udaipur, held that royalty payments for the permanent right to use a registered trademark are not subject to service tax. This decision concerned an arrangement where Bajaj Resources Limited (formerly Bajaj Consumer Care Limited) granted an exclusive, worldwide license for 99 years to M/s Bajaj Corp Limited (BCL) for trademark use. Initially, Bajaj Resources paid service tax on this royalty under ‘Intellectual Property Services’ but later argued that the arrangement constituted a ‘deemed sale’ under Article 366(29A) of the Constitution of India, which is excluded from the definition of ‘service’ in the Finance Act, 1994.
The tax authorities rejected Bajaj Resources’ refund claim and demanded service tax, contending the license did not involve a legal transfer of possession and remained a taxable service. However, the CESTAT determined that the 2010 novation agreement, granting BCL exclusive and long-term rights, satisfied the five conditions for a ‘deemed sale’ as outlined by the Supreme Court in Bharat Sanchar Nigam Ltd. Vs. Union of India. The Tribunal concluded that the transaction was a ‘deemed sale’ and thus outside the scope of ‘service’ for service tax purposes, leading to the service tax demand being set aside.
