Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Regional Bench – Court No. III, has held that the permission granted to Real Image Media Technologies Private Limited to use imported equipment of DTS for creating soundtracks does not amount to the rendering of “intellectual property services” under the Finance Act, 1994. As the intellectual property in question was not registered under Indian law, the Tribunal ruled that there was no import of taxable services, and therefore no service tax was payable on a reverse charge basis.

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The appeal was heard by P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member). The appellant, engaged in sound recording and production services, had entered into a Production Services Agreement with DTS Inc., USA, permitting the appellant to use DTS technology and imported DTS equipment to create DTS soundtracks for films produced and released in India. As consideration, the appellant paid a licence fee to DTS for each soundtrack produced under the agreement.

The Adjudicating Authority earlier concluded that the primary purpose of the agreement was the transfer or use of DTS technology, equipment and trademarks, and held that the outgoing remittances constituted payments for the use of intellectual property rights. On this basis, the Authority raised a demand of service tax on the appellant on a reverse charge basis under Section 66A of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, and imposed interest under Section 75 and penalty under Section 78.

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Before the Tribunal, the appellant contended that only intellectual property registered under Indian law could be taxed under the Finance Act, 1994. The Bench noted that Section 65(55a) defines “intellectual property right” as any right to intangible property “under any law for the time being in force”, and that a coordinate bench of CESTAT had already interpreted this phrase to mean IPR must be protected under Indian law to fall within the tax net. The Tribunal observed that no evidence had been produced by the Revenue to establish that the technology or trademarks relied upon by DTS were registered under any Indian statute.

The Bench recorded that although the Adjudicating Authority claimed that the IPRs in question were covered by the Patents Act, 1970 and the Trade Marks Act, 1999, the finding was “bald and entirely unsupported by evidence”, and no registration certificates or statutory documentation were produced to support the conclusion. The Tribunal further noted that no enquiry was undertaken to verify whether the foreign property was registered in India.

Consequently, the Tribunal held that the intellectual property relied upon by the Revenue did not constitute “intellectual property rights” within the meaning of Section 65(55a) of the Finance Act, 1994, and that the related services did not constitute “intellectual property services” under Section 65(55b).

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Setting aside the demand, the CESTAT allowed the appeal and quashed the service tax, interest and penalty imposed on Real Image Media Technologies Private Limited. The Tribunal concluded that no reverse charge liability arose under Section 66A, as there was no import of intellectual property services within the meaning of the Finance Act, 1994.

Appearance

Shri R. Anish Kumar, Advocate for the Appellant

Smt. O.M. Reena, Authorized Representative for the Respondent

Cause Title: Real Image Media Technologies vs Commissioner of GST

Case No: Service Tax Appeal No. 42106 of 2015

Coram: P. Dinesha (Judicial Member), Vasa Seshagiri Rao (Technical Member)