Relief to Reebok India: CESTAT rules Technical Know-How not Registered in India, cannot be Taxable under IPR [Read Order]

In a major relief to M/s Reebok India Company, the appellant the Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that technical know-how not registered in India cannot be taxable in India under the head of Intellectual Property Rights (IPR).

M/s Refop India Company, or say RIC (formerly known as Reebok India Company), entered into a technology licence agreement with Reebok International Ltd. UK; under the agreement with RIC UK, RIC India were granted non-exclusive and non-transferable right to utilise the technology in manufacture and distribution of products in India; the rights granted comprised of data, and similar property rights, commonly known as technical know-how.

The contention of the department was that the appellants are required to pay Service Tax under the head “Business Auxiliary Service'', on the amount of royalty paid, to their overseas entity and the commission received from Greg Norman Division for identifying and negotiating with Indian exporters, under Reverse charge mechanism.

B.L. Narsimhan, assisted by Krati Singh and Aman Garg, counsels for the appellant, submitted that the transfer of technical know-how does not qualify as “IPR Services”; transfer of technical know-how in the impugned case is in pursuance of technology transfer agreement which encompasses limited rights of data documentation, drawings etc by no stretch of imagination, the same can be classified under the definition of IPR service under Section 65 (55B) and Section 65(55A) of the Finance Act 1994.

The counsels for the appellant submitted that in the instant case the taxable event i.e, entering into the agreement with RIC, UK for transfer of know-how has occurred in 1995 well before the levy of Service tax on IPR Services which was introduced with effect from 10.09.2004 vide Finance Act,2004; payment as royalty subsequent to the entering into agreement does not get determine the taxability of the transaction.

A Two-Member Bench comprising SS Garg, Judicial Member and P Anjani Kumar, Technical Memberbobserved that “We find that the taxability of technical know-how, at the hands of Indian companies receiving the same from overseas entities, was subject matter of various judgments of the Tribunal. Tribunal has been taken a consistent stand that transferring of technical know-how cannot be equated to transfer of Intellectual Property Right and that as long as the said Intellectual Property Rights not registered or patented in India.”

To Read the full text of the Order CLICK HERE

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