Tata Consultancy Services Limited vs Commissioner Of Service Tax, Mumbai

[Arising out of Order-in-Appeal No. YDB/18/LTU/MUM/2011 dated 12/1/2012 passed by the Commissioner(Appeals) Central Excise & Service Tax, LTU, Mumbai]

For approval and signature:

Honble Mr. P.S. Pruthi, Member(Technical) Honble Mr Ramesh Nair, Member(Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : seen of the Order?

4. Whether Order is to be circulated to the Departmental: Yes authorities? =======================================================

Tata Consultancy Services Limited : Appellants

VS

Commissioner of Service Tax, Mumbai : Respondent

Appearance

Shri. Sunil Gabhawalla, Chartered Accountant for the Appellants Shri. V.K. Kaushik. Asstt. Commissioner(A.R.) for the Respondent

CORAM:

Honble Mr. P.S. Pruthi, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 9/10/2015 Date of decision: /2015

ORDER NO.

Per : P.S. Pruthi

The appellant is engaged in Software Development and Consultancy Services.

2. Tata Group formed a joint venture with Unisys Corporation, USA and incorporated the company by the name of Tata Unisys Ltd(TUL). TUL entered into a Agreement with Unisys Corporation and was granted licence to use the technical information, know-how and system software relating to the manufacture of Document Processing System in terms of the agreement signed in July, 1996. Under the Agreement, know how was defined to mean trade secrets and other information and knowledge which is applicable to the development, manufacture, assembly, testing, repair and refurbishment of the products and known by the Unisys. Under clause 4 of the Agreement, Unisys and TUL were to develop a plan to enable TUL to undertake manufacturing of the products not later than January,1st, 1997. TUL commenced the manufacturing of documents processing system in 1996. In terms of Article 8 of the agreement, TUL was required to pay licence fee /royalty on an going basis to Unisys on all sales of products to parties other than Unisys at the fixed percentage of the sales. The Agreement was amended in 2005. The amended agreement also required the appellant to remit a royalty on all products by TATA. Meanwhile TUL had also been renamed as Tata Infotech Ltd in February, 1997 and later it merged with appellant i.e. TCS. The show cause notice was issued to the appellant on 7/1/2009 proposing to levy tax on the royalty paid by them to M/s. Unisys under the category of Intellectual Property Right Services. Demand was confirmed in adjudication and penalties were also imposed. The order of the Adjudication was upheld by the Commissioner(Appeals). The appellant are in appeal before us against this order of the Commissioner(Appeals).

2. Heard both sides and considered the submissions.

3. We have carefully considered the facts and submissions made by both sides.

4. The taxable service under consideration is defined under Section 65(105)(zzr) to mean any service provided or to be provided to any person, by the holder of Intellectual Property Right, in relation to Intellectual Property Service. Intellectual Property Service is defined under Section 65(55b) to mean (a) transferring (temporarily) or (b) permitting the use or enjoyment of, any intellectual property right. And Intellectual Property Right as defined under Section 65(55a) means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright.

4.1 Short question to be decided is whether the transfer of technical know how received by the appellant is a service which may be categorized under  Intellectual Property Right Services. We find that the definition of Intellectual Property Right must be satisfied to term the services received by the appellant as Intellectual Property Right Services. We find no clue at all in the records as to which type of Intellectual Property Right is being assigned to the  Technical know how received by the appellant. It is obvious from the definition of Intellectual Property Right that the right has to be a specific Right under a specific Law. Examples are given under the definition such as the Trade Mark which is a right provided under Trade Marks Act. Similarly the right mentioned as design in the definition is a right under the Design Act. Therefore we find that the technical know-how received by the appellant and the royalty payment made by the appellant to Unisys is nowhere established to result from the use of any Intellectual Property Right.

4.2 We may further go on to add that the Intellectual Property Right should be a right under the Indian Law. Intellectual Property Right not covered by the Indian laws would not be covered under taxable service in the category of Intellectual Property Right Services. We are fortified in our view by Board Circular F. No. 80/10/2004-ST dated 17/9/2004 which clarified that Intellectual Property emerges from application of intellect, which may be in the form of an invention, design, product, process,

technology, book good will 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 India Law) would not be covered under taxable services.

4.3 We are fortified in our view by the Tribunal decision in the case of Rochem Separation Systems (India) P. Ltd. Vs. Commr. of S.T. Mumbai-I 2015(39) S.T.R. 112 (Tri. Mumbai)] in which it was held that mere transfer of technology is certainly not related to service provided in relation to Intellectual Property Right service which involves the transfer or use of any Intellectual Property Rights.

4.4 The Ld. Counsel had also strongly contended the matter on ground of extended time period. However since, we have given our definite opinion on merits, we do not find it necessary to go into limitation aspect.

5. Impugned order is set aside and appeal is allowed.

(Order pronounced in court on __________________)

Ramesh Nair Member (Judicial) P.S. Pruthi Member (Technical) sk

5 ST/90/12