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Hamdard National Foundation (India) V/S CST, Delhi

    Service Tax Appeal No. 55385 of 2013 (Arising out of the Order-in-Original No. 31/Commr./PKL/2012 dated 16/10/2012 passed by The Commissioner, Central Excise Commissionerate, Panchkula) and Final Order No. 50335/2018

    Decided On, 15 January 2018

    At, Customs Excise Service Tax Appellate Tribunal Principal Bench New Delhi

    By, THE HONORABLE JUSTICE: S.K. MOHANTY
    By, MEMBER AND THE HONORABLE JUSTICE: B. RAVICHANDRAN
    By, MEMBER

    For Petitioner: B.L. Narsimhan and Narender Singhvi, Advocates And For Respondents: Sanjay Jain, Authorized Representative (DR)



Judgment Text


1. The appeal is against order dated 16/10/2012 of Commissioner of Central Excise, Panchkula. The brief facts of the case are that the appellant are owners of registered trade mark "Hamdard" for various Unani medicaments, cosmetics, syrups etc. They have entered into an agreement on 11/08/1975 with M/s. Hamdard (Waqf) Laboratories (HWL), Delhi for use of such trade mark in respect of products as marketed by HWL. This agreement was continuing and is subsisting. The appellant is receiving periodical payments as a consideration for use of the said trade mark in terms of the agreement which was renewed periodically. The dispute in the present appeal relates to service tax liability of the appellant for the period 01/06/2006 to 31/03/2011 with reference to such consideration received f

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or transferring the said trade mark rights. Proceedings initiated against the appellant resulted in the confirmation of service tax demand of Rs. 4,61,05,367/- alongwith penalties under Section 77 and 78 of the Finance Act, 1994.

2. The learned Counsel appearing for the appellant submitted that the tax liability is on transfer of Intellectual Property Right (IPR), in the present case in the form of registered trade mark. In terms of agreement dated 11/08/1975 such right was temporarily transferred to HWL and periodically renewed thereafter. The tax is on such transfer not on continuous enjoyment as can be seen from the statutory entries of Section 65(55a), (55b) and Section 65(105) (zzr). Relying on the decision of the Tribunal in similar cases, namely, Modi Mundipharma Pvt. Ltd. vs. CCE, Meerut : 2009 (15) S.T.R. 713 (Tri. - Del.), CST, Delhi - III vs. Denso Haryana Pvt. Ltd. : 2016 (42) S.T.R. 754 (Tri. - Del.), Munjal Showa Limited vs. CCE & ST, Delhi (Gurgaon) and vice-versa : 2017 - VIL - 559 - CESTAT - CHD - ST, and Petronet LNG Ltd. vs. CST, New Delhi : 2016 (46) S.T.R. 513 (Tri. - Del.), the learned Counsel submitted that a taxable activity happened much before the tax entry was introduced in the Finance Act, 1994 and as such there is no question of tax liability on the appellant.

3. The learned AR contested the appeal and submitted that the appellants are continuously receiving consideration on periodical basis for permitting HWL to use their brand name. Such continuous usage of brand name will lead to inference of continuous transfer of such right vested with the appellant. There is no one time transfer of right and the Original Authority is right in holding that the continuous receipt of consideration for such brand name is rightly liable to be taxed as transfer of IPR service.

4. We have heard both the sides and perused the appeal record. We note that the appellant, the owner of registered trade mark "Hamdard", transferred temporarily the right to use such brand name to HWL. The agreement was periodically renewed and is subsisting. The payment of consideration to use brand name was periodical and was amended from time to time. We have perused the impugned order which upheld the tax liability. The Original Authority confirmed the liability mainly on the basis that the impugned agreement indicates that the appellant's transfer of right is not on a permanent basis for a life time and in such a case it should be rightly liable to tax as there is no permanent transfer of rights in terms of the agreement. In fact, the Original Authority even distinguished the decision of the Tribunal in Modi Mundipharma Pvt. Ltd. (supra) stating that there is no continuous use of brand name in the said case. In the said case, the Tribunal dealt with transfer of technical knowhow.

5. We note that the ratio followed in the decisions of the Tribunal, as mentioned by the applicant is squarely applicable to the present facts of the case. Admittedly, the appellant transferred the right to use the registered brand name to HWL in 1975. This is not disputed. The continuous usage of such right by HWL cannot be construed as continuous rendering of taxable service on the part of the appellant. In this connection, we reproduce below the statutory entries for such tax:-

Section 65(55a): "intellectual property right" 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;

Section 65(55b): "intellectual property service" means,-

(a) transferring temporarily; or

(b) permitting the use or enjoyment of, any intellectual property right;

Section 65(zzr): to any person, by the holder of intellectual property right, in relation to intellectual property service";

6. A plain reading of the above statutory entry makes it clear that Intellectual Property Service means transfer temporarily or permitting the use or enjoyment of any IPR. Admittedly, such transfer happened before the introduction of the tax entry in the present case. The tax entry is not for continuous usage of Intellectual Property but on the event of transfer or permission. Examining the said tax entry, the Tribunal in Denso Haryana Pvt. Ltd. (supra) observed as below:-

"5. Having heard both the sides and examined the terms of the agreement and other facts of the case, we find that the point for decision is whether or not IPR service was received even after 10-9-2004 by M/s. DHPL in terms of agreement entered into in 2002. We find similar issue came up before this Tribunal for decision. In the case of Modi-Mundipharma Pvt. Ltd. (supra) it was held that whether payment for such services is made in one lump sum or made in instalments or based on quantum of sale by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. It was held that the technical know-how was transferred in terms of the agreement and appellant manufacturing and selling product over a period using the technical know-how and making payment periodically will not affect the fact of one time transfer which is held to be not a taxable event as the same was prior to 10-9-2004. The Tribunal did not agree with the argument of Revenue that use of formula and the know-how will amount to continuous used service covered by the periodic payment.

6. In the case of Petronet LNG Ltd. v. CST, New Delhi (supra) the Tribunal held that regarding taxability of appellant in respect of supply of tangible goods the date of long term charter agreement will be relevant though the tangible goods were continued to be used even after the introduction of service tax liability on such service. The Tribunal held that the taxable event of supply of tangible goods for use has taken place prior to the introduction of tax on such service; and that though hire charges for the actual use were remitted subsequently and periodically, no service tax is leviable.

7. We find the facts and the legal analyses as made in the above two decisions are applicable to the present case. Here the agreement for grant of license or transfer/permission to use technology was effected before 10-9-2004. The fact that M/s. DHPL continued to manufacture and sell using such transferred technology even after the introduction of service tax on IPR cannot be considered as continuous supply of service. The rendering of service is effectively determined by the date of transfer/permission to use technology by M/s. Denso, Japan which was prior to the introduction of tax liability on such service".

7. We find that the above ratio is squarely applicable to the present case. The same has been consistently applied in various cases also by this Tribunal. The Original Authority fell in error in distinguishing the decision of the Tribunal before confirming the demand. The impugned order is set aside. The appeal is allowed.

(Order dictated and pronounced in open court.
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