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Permanent transfer of IPRs would be subject to 18% GST: Notification

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permanent transfer of intellectual property rights gst

Notification no. 13/2021 – Central Tax (Rate) dated 27-10-2021

Based on the recommendation of the 45th GST Council meeting, GST rate on the permanent transfer of the Intellectual Property right (IPR), in respect of goods other than IT software, under the service tariff notification was increased from 12% to 18% by Notification no. 06/2021 – Central Tax (Rate) dated September 30, 2021. However, no such amendment was made in the rate notification of goods (as similar expression was also there). In order to avoid any ambiguities, amendment in the rate notification of goods has also been made to provide the GST rate of 18% on the permanent transfer of all IPRs.

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Taxability Position on IRP Under GST

Home Learn Taxability Position on IRP Under GST

Goods and Services Tax Taxability Position on IRP Under GST

Table of Contents

Gst Rate On Permanent Transfers Of Ipr In Respect Of Goods Has Been Increased By The Cbic

GST rate on permanent transfers of IPR in respect of goods has been increased by the CBIC

the government must issue clear instructions to avoid future controversies, tax avoidance, and subsequent litigation, as well as proper compliance to promote ease of doing business with regard to applicability of GST on Intellectual Property (IP) right

Permanent transfers Vs Temporary transfer : Supply of goods or services?

Under the Heading 9973(ii) uses the words “Temporary or permanent transfer or permitting the use or enjoyment of IRP under Supply of services . Prima facie, this gives an impression that permanent transfer of Intellectual Property right shall also be treated as supply of services in the goods and services tax regime.
There was ambiguity as to treatment because of rate of GST to be applied for permanent transfer of IPR is 18 percent if treated as a "supply of services" and 12 % if treated as a "supply of goods." This is now in line with the GST rate on permanent transfers of Intellectual Property Rights ("IPR") in respect of products, which has been increased from 12% to 18% and bringing it in line with the supply of services.

Before amendment via GST Notification By CBEC:

Permanent transfer of Intellectual Property (IP) right in respect of Information Technology software : 18%:
In Case of Permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software : 12%:

After amendment via GST Notification By CBEC:

GST rate on permanent transfers of IPR in respect of goods has been increased by the CBIC.
Permanent intellectual property law transfer is not regarded as a provision of service. Despite the fact that the applicable tax on both permanent and temporary transfers of intellectual property rights is now the same, the GST law has clarified that only permanent transfers of intellectual property rights are deemed supplies of commodities and are taxed appropriately.
Permanent transfer of IPR whether of goods or IT software shall be taxable @ 18%: Deletion of entry permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software” and prescribing of entry “Permanent transfer of Intellectual Property (IP) right” which is taxable @ 18%. Now therefore, any permanent transfer of IPR shall be taxable @ 18% Notification : 13/2021-CT (rate) dt. 27.10.2021 (Seeks to amend Notification No. 01/2017 – Central Tax dated 28.06.2017)
So Conclusion is GST rate on permanent transfer of IPR on goods by increasing GST rate from 12% to 18% & made it at par with supply of services.

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Temporary vs. Permanent Transfer of IPR: An Analysis of GST rates

In the 45 th GST council meeting, the GST rates of permanent transfer of IPR services is increased from 12 percent to 18 percent. There was no further amendment in the rate of goods notification except the increment of service tariff from 12 to 18 percent. GST rates of 18% on permanent transfer of IPRs has been amended in order to avoid any ambiguities.

The notification no. 13/2021 dated October 27, 2021 was released by central tax to put GST rate on permanent transfer of IPR in respect of goods by increasing GST rate and made it at par with supply of services.

After effect of the new amendment in permanent transfer of IPRs

The Central Board of Indirect Taxes and Customs (CBIC) announced an 18 percent GST on the temporary or permanent transfer of or permission to use or enjoy Intellectual Property Rights (IPR). The Board empowered under sub-sections (1), (3), and (4) of section 9, sub-section (1) of section 11[1], sub-section (5) of section 15[2], sub-section (1) of section 16[3], and section 148[4] of the Central Goods and Services Tax Act, 2017, the Central Government, on being satisfied that it is necessary for the public interest, amended notification No.11/2017- Central Tax (Rate), dated the 28th June 2017.

The GST rate of 18% applies to the temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) rights; services by way of job work in relation to the manufacture of alcoholic liquor for human consumption and other manufacturing services; publishing, printing, and reproduction services; and materials recovery services. Furthermore, 18% GST is required on entrance to theme parks, water parks, and any other location with joy rides, merry-go-rounds, go-carting, or ballet.

The Board has announced that 28 percent GST would be levied on services such as entry to (a) casinos or race clubs or any location with casinos or race clubs, or (b) sports events such as the Indian Premier League.

Pre and Post GST regime under IPR

Pre regime: – The Goods and Services Tax Law does not define what intellectual property rights are, but in MoF (DR) Decree B2/8/2004TRU of 1092004, the definition states that “Intellectual property arises from the application of intelligence, Permanent transfers of intellectual property rights in the pre- GST regime in the form of books, goodwill, etc. did not constitute provision of services. C.B.E. & C. Circular F. No. B2/8/2004TRU, Issue 1092004, “Permanent transfer of intellectual property rights does not constitute the provision of any service. Such transfer leaves the person selling such rights as an “intellectual property owner” no longer subject to taxable services. Therefore, there is no service tax on the perpetual transfer of intellectual property.”

Also, in case of Thermax Ltd. Vs. Commissioner of Central Excise, Pune-I – 2014 (36) S.T.R. 318 (Tri.-Mumbai) the courtroom docket reiterated the view that “it’s also very clean from the stated Circular that a everlasting switch of highbrow assets proper does now no longer quantity to rendering of service. In the existing case, the appellant has emerge as a co-proprietor of the highbrow assets which might imply that the switch is everlasting. Therefore, the transaction does now no longer come beneath Neath the purview of Section 65(55b) of the Finance Act, 1994.”

Post regime : – According to the Goods and Services Tax Act, a permanent transfer of intellectual property rights is classified as a supply of goods. Additionally, section 9(1) of the Central Goods and Services Tax Act of 2017 states that the central government is authorized to impose CGST on all domestic supplies of goods or services. Central Tax (Tax Rate) Heading 9973 “Temporary or permanent assignment or permission to use or enjoy intellectual property (IP) rights in goods other than information technology software” is subject to 12% (6% CGST + 6% SGST) . [2] and in the product category, “perpetual transfer of intellectual property (IP) rights in goods other than information technology software” are taxed at 12% (CGST 6% + SGST 6%).

Announcement dated October 27, 2021 (Notice No. 13/2021 central tax rate (tax rate) revised the tax rate for goods and services from 12% to 18% in case of permanent transfer of intellectual property rights and additionally changed Notice No.01 /2017 2017 The central tax (tax rate) of 28 June, is intended to harmonize the VAT rate for the perpetual transfer of intellectual property rights in goods and services.

GST rates after 18%

The impact of new amendment has mainly affected transactions which are related with publishers dealing with authors, royalty payment of auto OMEs under JVs, M&A deals relating to brand transfers, etc.

There are various rulings under the old Indirect Tax legislation, where the permanent transfer of IPRs were regarded as commodities. Taking note of the fact that controversy may emerge about the categorization of the permanent transfer of IPRs under GST, the Government, previous to this change, supplied the same description under the tariff notification related to goods as well as services. We may learn the same from a comparison table presented below: –

The adjustment has now only been made to raise the GST rate from 12% to 18% under service tariff notice. There has been no such change to the rate notification for Goods. This would open the door to litigation, since one may claim that permanent transfer of IPRs qualifies as a sale of commodities, and so the appropriate GST would be 12 percent.

The inclusion of a precise rate of 18% in the service tariff notice, effective October 1, 2021, would put an end to any additional confusions about the availability of 5% GST. Prior to the inclusion of a particular provision in the amendment, it was widely assumed that alcohol is equal to food and food products, and hence employment labor services related to the same are taxed at 5%.

An analysis

According to Section 9 (1)[5] of the Central Goods and Services Tax Act of 2017, “a tax known as the central goods and services tax must be imposed on all intra-State sales of goods or services or both,… as may be specified by the Government on the recommendations of the Council…” According to the Central Tax (Rate), “Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12 percent (6 percent CGST+6 percent SGST), and “Permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12 percent (6 percent CGST+6 percent SGST). [Emphasis added.]

Because the phrase ‘permanent transfer’ is included for both categories, products and services, it may seem that all types of services possibly entail permanent transfer. However, a look at the heading of 9973 reveals that this is not the case. 9973’s header is “Leasing / rental services with or without operator.” As a result, the heading 9973 makes it apparent that the heading’s scope is confined to the specific services stated in the heading. As a result, it is this author’s judgment that, with the exception of leasing and rental services, all other services constitute only a temporary transfer, and that even leasing and rental services may, depending on the facts, entail only a temporary transfer. Goods, on the other hand, always imply a continuous transfer. Apart from the particular exception, it seems that temporary transfer or license is seen as a provision of service, while permanent transfer of intellectual property is regarded as a supply of commodities. As a result, in my judgment, the legal situation has remained virtually intact since the implementation of the GST system.

Temporary transfer Vs. Permanent transfers: Supply of goods or services?

Supply of services : Clause (ii) under Heading 9973 uses the words “Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right . Prima facie, this gives an impression that permanent transfer of IPR shall also be treated as supply of services in GST.

Supply of goods :

For period 01.07.2017 to 14.11.2017 – Permanent transfer of IPR covered only under services rate notification in GST and hence to be treated as supply of services.
For period 15.11.2017 onwards – Permanent transfer of IPR covered under both goods and services rate notification in GST as services rate notification has not been amended yet to remove the reference of ‘permanent transfer’ of IPRs. Hence, quandary as to taxability of IPRs as goods or services continue to exist in GST regime also.

Since rate of GST to be applied is also different for permanent transfer of IPR being 18%, if treated as ‘supply of services’ and 12%, if treated as ‘supply of goods’, there was an ambiguity as to treatment of same. This is now aligned for GST rate on permanent transfer of Intellectual Property Right ( “IPR” ) in respect of goods by increasing GST rate from 12% to 18% and made it at par with supply of services.

The doctrinal stance of law has remained constant throughout the years, despite changing statutes and increasing case law. Permanent transfer of intellectual property law is not regarded as service providing. Despite the fact that the relevant tax on both permanent and temporary transfer of intellectual property rights is currently the same rate, the GST legislation has mandated that only permanent transfer of intellectual property rights is deemed a supply of goods and is taxed appropriately.

The blog has been written by Mr. Piyush Khatri (Assisted by Mr. Ayush Garg – Intern).

[1] Central Goods and Services Tax Act 2017, s. 11.

[2] Central Goods and Services Tax Act 2017, s. 15, cl. 5.

[3] Central Goods and Services Tax Act 2017, s. 16, cl. 1.

[4] Central Goods and Services Tax Act 2017, s. 148.

[5] Central Goods and Services Tax Act 2017, s. 9, cl. 1.

Piyush Khatri

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Article: Whether Transfer of IPR is Considered Supply of Service or Supply of Goods Under the GST Regime?

Author: Shreya Das

Introduction

Intellectual Property Rights are becoming more and more integral part of businesses. Right owners are expanding the usage of their intellectual properties by way of giving license or assignment. To expand market share, businesses are acquiring/using each-others’ intellectual properties. Transfer of intellectual property can be done in two ways. Right holders can either give their rights over by way of licensing agreement or by way of an assignment.

Whereas licensing agreement does not actually transfer proprietary rights, assignment agreement transfers rights permanently, including proprietary rights. The applicable tax for these two different types of transactions is different as well. In this article, I shall be discussing the applicable tax on permanent transfer of intellectual property rights based on its nature.

Pre-GST Regime

Prior to 2017, permanent transfer of intellectual property was not considered as supply of service. As per the C.B.E. & C. Circular F. No. B2/8/2004-TRU, dated 10-9-2004, “A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a “holder of intellectual property right” so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs” [1].

A permanent transfer of intellectual property right therefore did not amount to rendering of service as the person selling these rights no longer remains a “holder of intellectual property right” . In the case of AGS Entertainment Pvt. Ltd. vs. Union of India , [2013 (32) S.T.R. 129] [4], the High Court of Madras took a similar view.

Another case wherein the court held that service tax is not applicable on permanent transfer is iIn the matter of SKOL Breweries Ltd. (Now known as Anheuser Busch InBev India Ltd.) Vs C.C.E & C.S.T. [Service Tax Appeal No. 2017 of 2012] [5], the Customs, Excise & Service Tax Appellate Tribunal, [Hon’ble Mr. S.S Garg &, Judicial Member, Hon’ble Mr. P. Anjani Kumar, Technical Member] vide its order dated November 10, 2020, took a similar view, and confirmed that there is no service tax applicable on permanent transfer of the intellectual property rights. With reference to the Finance Act, 1994, noting Section 65(55b) – “Intellectual Property Service”“(a) transferring, [ temporarily ]; or (b) Permitting the use or enjoyment of, any intellectual property right” read with Section 65(105)(zzr) – “Taxable Service” “to any person, by the holder of intellectual property right, in relation to intellectual property service.” , the Tribunal pointed out that one of the key ingredients for determining if any service related to intellectual property right is taxable under service tax or not, is to see if there has been “…temporary transfer of any intellectual property right OR there has to be the permission to use or enjoy any intellectual property right” [Emphasis supplied]. It is clear when there is a transfer of intellectual property rights, it has to be temporary in nature to apply service tax on the same.

Introduction of GST

As per Section 9 (1) of the Central Goods and Services Tax Act, 2017, “there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, … as may be notified by the Government on the recommendations of the Council…” . As per the Central Tax (Rate), under the category of service, under heading 9973, “Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12% (6% CGST+6% SGST) [2], and under the category of goods, “Permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12 % (6% CGST+6% SGST) [3] [Emphasis supplied].

Since the term ‘permanent transfer’ is mentioned for both categories viz. goods and service, it may seem like all kinds of services are capable, potentially, of involving a permanent transfer. A reference, however, to the heading of 9973 makes it clear that it is not so. The heading of 9973 reads as “Leasing / rental services with or without operator” . The heading of 9973 therefore makes clear that the scope of the heading is limited only to the particular services mentioned in the heading. Notwithstanding the broad language of the contents of heading 9973, its scope does not cover services other than those mentioned in the heading. It is this author’s opinion accordingly that except only for leasing and rental services, all other services entail only a temporary transfer and that even leasing and rental services may on its factual circumstances entail only a temporary transfer. Goods, on the other hand, always entail a permanent transfer. It would appear therefore that apart from the specific exception, temporary transfer or licensing is considered as supply of service and permanent transfer of intellectual property as supply of goods. In my opinion therefore, the position of law remains largely unchanged by the introduction of the GST regime.

Over the years, with changing laws, and developing case law, the doctrinal position of law remains the same. A more specific contextual inquiry is called for, though, in relation to leasing and rental services. Permanent transfer of intellectual property law is not considered as supply of service. Even though the applicable tax on both permanent and temporary transfer of intellectual property rights happen presently to be at the same rate, by the introduction of the GST law, it has been endorsed that it is only permanent transfer of intellectual property rights that is considered as supply of goods and taxed accordingly.

[1] C.B.E. & C. Circular F. No. B2/8/2004-TRU. http://centralexcisetrichy.gov.in/newcentral/tradenotice/st/yr0405/tn12.pdf

[2] https://cbic-gst.gov.in/gst-goods-services-rates.html

[3] https://cbic-gst.gov.in/gst-goods-services-rates.html

[4] AGS Entertainment Pvt. Ltd. vs. Union of India. https://indiankanoon.org/doc/123738864/

[5] SKOL Breweries Ltd. Vs C.C.E & C.S.T. (CESTAT Bangalore). https://taxguru.in/wp-content/uploads/2020/12/SKOL-Breweries-Ltd.-Vs-C.C.E-C.S.T.-CESTAT-Bangalore.pdf

Disclaimer: Views, opinions, interpretations are solely those of the author, not of the firm (ALG India Law Offices LLP) nor reflective thereof. Author submissions are not checked for plagiarism or any other aspect before being posted.

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ALG attorneys practice only in teams viz. accept appointment as advocates-cum-agents on any file/mandate only jointly in practice-groups of at least two ALG attorneys. At ALG, Advocates and IP Agents also participate and share in and contribute towards discharging certain ancillary and support functions in addition to their primary professional responsibilities as lawyers and IP Agents, and this also they do as part of teams and not as individuals. Management functions such as client-relations generally, as well as on any specific file, previous client relations, potential client relations, billing, expenditure, accounts, infrastructure and office management etc. are all thus discharged by such teams. ALG attorneys are not permitted to engage in any sole or individual practice, not even in an outside-ALG or private capacity.

There is functional specialization in ALG in addition to specializations in Areas of Focus and Areas of Practice. In her/his professional work as an Advocates and/or an IP Agent, each individual at ALG specializes, as part of a team, in certain allocated core functions on any client file and discharges only that core function on any client file, instead of handling a client file in all respects or/and from file opening to file closing.

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ALG does not adopt, have or implement any differential billing rate, treatment or fee schedule for and amongst its clients, whether domestic or foreign, or between any such or other categories, either on a on a case by case basis or on any such categorization basis. ALG does, however, provide differently customized client-tailored suite of its IP legal representational services for each of its clients resulting in naturally different costs to different clients for what might otherwise superficially appear similar engagements but would be only apparently similar engagements. ALG works closely with each of its clients to understand that client’s needs and requirements to adapt its billing structure, format and arrangement itself for a more conducive mutual fit. ALG does provide special discounts to its clients but this is on the basis of long-standing relationships reflecting sustained and deep engagement and commitment. It provides these automatically and only in accordance with its internal policies, not on request, demand, discretion or ad-hocism. ALG also provides but only in accordance with its internal policy in force at any given time, what are in the nature of bulk discounts for several simultaneous similar or related instructions or engagements. Actually, these reflect value based reductions given the nature of the instructions and engagements as a package. ALG’s billing arrangements for any engagement are predicted on an attorney-client relationship. ALG is a lawfirm and it provides only legal IP representational services; it does not provide non-legal IP business services or non-legal IP liaison services. ALG’s billing is for this reason incapable of being disaggregated in any part into either of these two types of services that ALG does not provide. ALG does not have any generally applicable fee schedules for any generic or pre-defined activities, services, tasks or engagements because ALG does not provide such modular or otherwise template based services.

We at ALG take seriously our commitment to serving and uplifting our communities. To these ends, we strive to fulfil our professional and ethical responsibilities by providing free legal services appropriately to indigent or otherwise needy individuals and organisations; briefs and cases.

The firm expects each ALG lawyer, regardless of designation, to devote a portion of her/his time and energies to providing pro bono legal services (for free or at reduced charge). The firm strongly encourages all ALG lawyers to seek and maintain active empanelment with local and regional Legal Aid Committees, to seek and take up legal cases and matters both in court and outside court, at appropriately discounted if not altogether waived professional fees. All ALG lawyers are strongly encouraged to discharge their duty to the bar, profession and society by doing so and they are not restricted to only intellectual property law cases and matters in this regard.

Each ALG lawyer’s record of pro bono legal work is considered an important factor in that lawyer’s evaluation and taken into consideration for advancement decisions at the firm.

ALG provides the same quality of professional representation and legal service, regardless of an accepted client’s ability to pay. Pro bono matters of ALG lawyers are treated as that of the firm and no differently than regular billable matters, being accorded the same attention, dedication and resources.

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Union Budget 2023
Goods and Services Tax

GST Liability on Intellectual Property Right (IPR) Related Services

In this article, An attempt has been made to simplify GST liability on services related to Intellectual Property rights.

What is Intellectual Property Right :- The term ‘Intellectual Property Right’ (IPR) has not been defined in GST Law. MF(DR) circular No. B2/8/2004-TRU dated 10-9-2004 states as follows – Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill, etc.

Intellectual property rights are like any other property right. They allow creators, or owners, of patents, trademarks or copyrighted works to benefit from their work or investment in a creation.

The intangible nature of intellectual property presents difficulties when compared with traditional property like land or goods. Unlike traditional property, intellectual property is “indivisible”, since an unlimited number of people can “consume” an intellectual good without it being depleted.

IPR – Goods or Services IPR itself is a ‘Good’ but license to use IPR is a service’.

Permanent transfer of IPR is Goods: Intellectual Property Right is a property of a creator and if the creator permanent transfers the right on property, it is considered as a supply of Goods.

Temporary transfer of right to use IPR is Services:- The creator of IPR temporary transfers the right to use of any Intellectual Property Right ( IPR) is a supply of services. He may permit the use or enjoyment of IPR to others for consideration.

As per Para c of schedule II of CGST Act: Temporary transfer or permitting the use or enjoyment of any Intellectual Property Right (IPR) is ‘supply of service’

Transfer of IPR is Taxable under GST: – Both the permanent transfer of IPR and temporary transfer are subject to GST. Temporary transfer includes permitting use or enjoyment of IPR.

GST Rates of IPR :

Services related to IPR can be broadly classified under the following headings:-

(a) Software Development services

(b) Franchise Service

GST liability on Software:- Software is a set of instructions that allows physical hardware to function and perform computations in a particular manner, be in word processor, web browser or the computer’s operating system.

Development of Software is service under GST : Development, design, programming, adaptation, up-gradation, enhancement, implementation of information technology software is a supply of service . ( Para 5(d) of Schedule II of CGST Act ).

Information Technology Software: Information technology software means any representation instructions, data, sound or image, including source code and object code recorded in machine-readable form, where a user is capable to manipulate and get interactivity of all these instructions using a computer or an automatic data machine or any other device or equipment.

The software in physical form is goods under GST : Though the CGST Act defines the development of software as ‘service’, software in physical form (branded as well as tailor-made), ‘Information Technology Software’ is ‘goods’ in Customs Tariff Act under heading 8523 80 20.

In Tata Consultancy Services v. State of Andhra Pradesh (2004) it has been held that canned software (i.e. computer software packages sold off the shelf) like Oracle, Lotus, Master-Hey, etc. are ‘goods’. The copyright in the program may remain with originator of the program, but the moment copies are made and marketed, they become ‘goods’.

In -State Bank of India v. Municipal Corporation 1997 it was held that ‘computer software’ is ‘appliance’ of the computer. It was held that it is ‘goods’ and octroi can be levied on full value and not on the only value of empty floppy.

Customized and non-customized software both are goods –( Infosys Technologies Ltd . v. Special Commissioner(2008))

GST Rates of Software

The GST rate (as goods) is the same as GST rate of development of software or licensing of software service.

GST Rates & HSN for Software as services :-Temporary transfer of IPR of software is service. The GST rate is 18% (9% CGST and 9% SGST/UTGST) or 18% IGST. Temporary or permanent transfer or permitting use or enjoyment of Intellectual Property Right (IPR) in respect of software falls under service group 99733.

GST Rates & HSN for Software as goods :- Permanent transfer of IPR of software is ‘goods’ and GST rate is 18% [9% CGST plus 9% SGST] or 18% IGST. The HSN classification is ‘Any Chapter’- Sr. No. 452P of Schedule III of Notification No.1/2017-CT (Rate) and 1/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 15-11-2017.

Place of Supply :

Place of Supply of Service of development of software and services on software is the location of recipient.

Software is intangible. It does not have a unique existence and can exist on different servers at any point in time. Hence, in case of service of development of software (development, design, and programming of information technology software) and services on software (testing, debugging, modification, etc. i.e. customization, adaptation, up-gradation, enhancement, implementation of information technology software), the place of supply is the location of recipient of service – CBIC circular No. 209/1/2018-ST dated 4-5-2018.

To be continued ………………..

Part II of the Article will cover GST liability on IPR of Franchise services & Copyright Services.

Author can be reached to [email protected]

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Name: CA Anita Bhadra

Qualification: ca in job / business, company: bharat electronics limited, location: mumbai, maharashtra, in, member since: 17 aug 2017 | total posts: 195, my published posts, join taxguru’s network for latest updates on income tax, gst, company law, corporate laws and other related subjects..

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Hello Madam, In the GST rate Table, you have wrongly mentioned GST rate of permanent transfer of IPR (goods) as 6% instead of 9%

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Permanent Transfer of IPRs attracts 18% GST: CBIC [Read Notification]

Permanent Transfer - IPR - GST - CBIC - taxscan

The Central Board of Indirect Taxes and Customs ( CBIC ) has notified that permanent transfer of IPRs attracts 18% GST.

In exercise of the powers conferred by sub-section (1) of section 9 and subsection (5) of section 15 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the further amend the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.1/2017-Central Tax (Rate), dated the 28th June, 2017.

In the said notification, in Schedule II – 6%, S. No. 243 and the entries relating thereto shall be omitted.

Further, in Schedule III 9%, against S. No. 452P, in column (3), the words “in respect of Information Technology software” shall be omitted.

The above mentioned changes are applicable on Integrated Goods and Service Tax (IGST), Central Goods and Service Tax (CGST) and Union Territory Goods and Service Tax (UTGST).

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The Conundrum Of Taxing IPR: The Achilles Heel Of Taxation Regime In India

[ By Brahm Sareen ]

The author is a student at the University school of law and legal studies, GGSIPU.

Introduction:

Recently, the multinational corporations (hereinafter referred to as “MNCs”) operating under the franchise agreement in India started facing scrutiny by the taxman over the royalty income which is a part of their intangible assets. These MNCs operate in India by allowing the Indian companies to operate their subsidiaries in their global brand name. With the growth in the transfer of these intangible assets, the states naturally started taxing these transactions making them a part of the broader economy [1] . However, in the past, these transactions had sparked controversy over the taxability of intellectual property rights (hereinafter referred to as “IPR”) in India. The conundrum of whether to categorize intangible assets as sale of goods or services along with defining the nature of the agreement remains unresolved.

A recently similar question of law was dealt with by the Hon’ble High Court of Punjab and Haryana in a writ petition filed by Subway systems in India against the tax authoritie. In this case, Subway alleged that the Indian Taxman, without issuing an advance ruling notification, issued various summonses over the non-payment of taxes on their intangible assets and royalty. The question remains the same, as to whether MNCs be taxed on their intangible assets under the right to use, or the transaction be treated as a transfer of right to use or “deemed sales”? Therefore, delving into the aspects of the current IP taxation regime in India is important as the Indian taxation regime deals with these transactions differently.

IPR tax regime in India:

Before the advent of GST reforms in the taxation regime of India, there lies a long-drawn debate on the assignment and licensing of intangible property. However, a well-defined jurisprudential aspect in the IPR taxation regime still lacks as irregularities and discrepancies were all left on the judiciary to decide. In this sense, it is important to define an intangible property to further categorize it and identify the nature of the agreement and the transaction involved.

According to section 2(11)(b) of the Income-tax Act, 1961 , intangible assets include “know-how, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature” excluding goodwill of a business. Delving into the question of whether these assets are goods or services, the CGST Act, 2017 shall be referred. According to section 2(52) of the CGST Act, 2017 , goods include all types of moveable property other than money and securities. Going by this definition it is safe to assume that the supply of any moveable property is a supply of goods.

In Tata Consultancy services vs. the State of Andhra Pradesh , the Hon’ble Supreme Court held that intangible assets can be called goods if they are capable of being abstracted, consumed, used, transferred, delivered, stored, or possessed. While on the other hand according to C.B.E &C Circular No.80/10/2004-S.T dated 17.09.2004 , temporary transfer of IPRs will be termed as intellectual property services while the permanent transfer of such rights cannot be termed as service. This is because the holder of the intellectual property will no longer hold it in his/her possession and therefore, it will be dealt as sales of the intellectual property. This position of law is also defined by Section 66E(c) of the Finance Act, 1994 which states that temporary transfer or enjoyment or permission to use an IP is a part of services excluding permanent transfers of such property. Accordingly, if the intellectual property is dealt as goods then the transfer of such goods will be deemed sales according to article 366(29A) of the Indian constitution. The position of law, therefore, before the application of GST in India was based on the interpretation of the nature of the transaction, however current regime too has failed to give a conclusive end to the problem of taxability.

Licensing v. Assignment

Much of the debate on the rates of tax to be imposed on MNCs boil down to the nature of the transaction involved. Particularly, the argument lies in the categorization of such transactions. It is not the first time that this question of law is argued. For one reason, it can be sufficiently derived that the jurisprudence before GST had enough debate on the same. One such example is Commissioner of Sales Tax v. Duke and Sons Pvt. Ltd. While this case enumerates the difference between licensing and assignment, the same is ridiculed the moment it distinguishes the transfer of a trademark from the assignment of the same further stating that “permission in writing as required by law may be enough” to suffice transfer of a trademark. The whole jurisprudence behind the concept of “deemed sales” was reduced to permission in writing in this one single sentence. Further, the proposition in its judgment which distinguished assignment and transfer of right to use were against the settled position of law. Something to which an attempt was made by the court to reverse the same in BSNL vs. Union of India which had set out a clear test of exclusivity to identify the nature of the transaction. The BSNL judgment though has been rendered irrelevant with the advent of GST as tax is concurrent now, still laid down the exclusivity test that can be still applied.

The Duke judgment as a whole gave a clear description of what the difference between assignment and licensing. It was held that the assignment of a trademark would mean the proprietor would be divested from his right to use the trademark whereas the same would not be the case in-licensing of a trademark. A license per se is an assurance to the licensee that the owner or the proprietor of the asset won’t initiate any legal proceedings against him if he uses the same. On the other hand, the assignment of an asset would simply mean the right over the asset being transferred to the assignee either wholly or partially. Where section 19 of the Copyright Act, 1957 treats the assignee as the owner of the asset, and a plain reading of section 45 of Trademark Act, 1999 clears the air that the assignee becomes the proprietor of the assigned trademark, the court simply failed to interpret the legislative intent.

Current position

Recently, the 45 th GST Council made the recommendation to increase the applicable tax rate for the permanent transfer of intellectual property rights in respect to goods from 12% to 18% vide Notification No. 13/2021-Central Tax (Rate) . Earlier the rates applicable to the permanent or temporary transfer of IPR in respect to the supply of goods were 12% other than IT software which was taxed at 18%. However post the notification, the separate tax rate for IT software has been omitted and the supply of goods is now taxed at 18% GST. This means that the permanent transfer of goods and services is now taxed at 18% GST. This is a clear case of nomenclature and disputed territory as a consequence. The phrase “permanent transfer” was not deleted from the service notification, however, was inserted in the notification of the goods creating a quandary as to the applicability of rates. This problem has not been resolved with the amended notification rather only the applicable rate has been increased.

Are franchise services the same as licensing services?

The question of whether the franchise model would be dealt with the same applicable taxes like that of licensing services under Serial No. 17, Heading 9973 mentioned in Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 is of utmost importance in the present writ petition filed by Subway. This question has been answered in an Advance ruling by Gujarat AAR GST in In re Tea Post Private Ltd . In this ruling, the AAR of Gujarat had faced a question of whether the franchising services and royalty fees would come under the ambit of Heading 9973 attracting the applicable rate of GST at 12% or would be dealt with differently under other headings. The applicant was a tea house chain under a franchise agreement with a third party under the brand name “TEA POST” who thereby submitted that the franchise fees and royalty is covered under heading 9973 and service code 997336 as per the scheme of classification of services. The AAR ruled that licensing and franchising shall be dealt differently. It stated that licensing implies that the ownership would remain with the licensor however the same cannot be stated in the case of franchising. In franchising, the ownership is enjoyed by the franchisee in “lieu of fee where the processes are controlled by franchisor”. Therefore, the AAR held that the nature of the agreement is of franchising than licensing. As a consequence, the applicable heading shall be Serial No. 21 Heading 9983- other professional, technical and business services and service code (Tariff) No. 998396 as “Trademarks and franchises”. The tax rate was decided to be 18%.

The ruling by Gujarat AAR has a lot of significance in the subway’s case. Subway like any other multi-national food outlet operates on a franchisee model. Therefore, the agreement cannot be dealt with in the same manner as that of licensing. This would directly impact the attracted GST rate in the present writ petition. Even though this does not justify the taxman’s conduct of heavy scrutiny towards businesses operating on franchisee models, this does make a case for the taxman to justify the rate of 18% under Heading 9983.

This was not the first time Subway faced a conflict of this nature. In the case of Subway Systems India Pvt. Ltd. vs. the State of Maharashtra , the conflict of whether the franchise fees and royalty would be taxed under VAT demanded by the tax authorities had arisen. However, the judgment was held in favour of Subway wherein the Bombay High Court held that mere inclusion of franchises under the MVAT act would not attract VAT and the nature of the agreement has to be analyzed. Even though the indirect taxation system in the pre-GST regime was not a settled position, various courts time and again held that franchise agreement gives mere permission to the franchisee to use the trade name or brand name and is a “representational right”. [2] Therefore, the taxman’s argument stating that franchise fees and royalty shall be categorized under transfer of right to use is both unsupported by law and reason.

What does an increased GST for MNCs mean?

The conundrum of taxability of intangible assets has created apprehension for MNCs operating in India. For one reason, MNCs believe that the franchisee business operated by them is full of risks and uncertainty owing to India’s transitory and unsettled tax laws. Therefore, MNCs try to avoid taxes through practices such as IP structuring, debt-shifting, and Transfer pricing. This puts the Indian tax authorities in apprehension of potential losses. While IP structuring is one of the common practices where MNCs register their intangible assets in low-tax countries, the same is one of the main causes of scrutiny towards MNCs by the authorities in India

However, this could mean that the Indian economy, which is still recovering from the pandemic, would be facing more problems with taxman’s hard scrutiny towards multinationals. This conduct will further invite procedural complications and ambiguities. As of now, it seems that the multinationals are in murky waters of uncertainty and the Indian taxman is on a hunt. This worsens the already worse situation the Indian economy has been in ever since the pandemic. To ensure secured investments, the agreement on setting up a global minimum corporate tax rate on MNCs would help India survive.

[1] Balaji Subramanian et al., Bottling Fame, Brewing Glory and Taxing the Transfer of Intangibles , 11 NSLR, 223, 224 (2017).

[2] MC Donalds India Pvt. Ltd. v. Commissioner of Trade and Taxes, New Delhi, 2017 SCC OnLine Del 8414.

India: Navigating The Tax Implications Of Intellectual Property Rights Transactions

Taxation plays a crucial role in financing public expenditure and supporting a country's economic growth. In recent years, Intellectual Property (IP) rights have been recognized as a valuable asset that can contribute significantly to a country's economy. As a result, taxation laws have expanded their scope to include IP rights. The transfer of IP takes place through the means of either assignment or licensing and each with its own set of tax implications. A robust tax regime in relation to IP rights would reflect how the IP regime as a system would thrive in a nation.

Taxability of IP Rights

But before proceeding to the section on deductions and exemptions, let us understand how IP rights, being intangible property, can be taxed. To be taxable, the nature of IP must be defined. Then it becomes easy to decide the deductions, exemptions, depreciation, and other allied provisions. As such, the GST law recognizes IPR as a "good," but a license to use the same is considered a "service." At the same time, the permanent transfer of IPR is "good", and the temporary transfer of the right to use IPR is recognized as a "service". Various judicial pronouncements, such as Commissioner of Sales Tax v. Duke & Sons (P) Ltd. ((1999) 112 STC 370 (Bom)), A.V. Meiyyappan v. Commissioner (AIR 1969 Mad 284), etc., also recognize patents, copyright, trademarks, and technical know-how as "goods". It should be noted that GST is only applicable on the transfer of IP rights for temporary use in exchange for a consideration, not on the sale of IP because the owner no longer owns the sold IP rights.

Provisions of IP taxation under the Income Tax Act, 1961

Several Sections deal with the taxation of IP rights under the Income Tax Act, of 1961, such as Sections 32(1) (ii), 35A, 35AB, 80 GGA, 80-O, 80OQA, 80QQB, 80RRB, etc. The Act treats IP as a depreciable asset for the computation of income.

Section 9(1)(vi) of the Act defines royalty and says that income by way of royalty is taxable. About the transfer of IP, if it is made for a lump sum consideration once and for all, then it falls under the category of capital gains and is taxable.

However, the following are certain exemptions to the above provision wherein royalties are not taxable:

Firstly , the royalty payable in respect of any right, property, or information used or services utilized by a person outside India to carry on business or profession or for any purpose of making or earning income from any source outside India.

Secondly , royalty is a lump sum consideration for any transfer outside India or imparting of information outside India in respect of any data, documentation, drawing, or specification relating to any patent, invention, model, design, secret formula or process, trademark or similar property if it is payable under an agreement made before 1st April 1976 and the same is approved by the Central Government.

Thirdly , a lump sum payment of income through royalty by a resident for the transfer of all rights, including granting of a license in respect of computer software supplied by a non-resident manufacturer, is approved under the policy on Computer Software Export, Software Development, and Training, 1986 of the Government of India.

Fourthly , in respect of patents and copyrights, section 35A of the Income Tax Act, 1961, deals with expenditure on the acquisition of both patents and copyrights. The purchaser is entitled to claim depreciation if they are bought for a lump sum consideration with an enduring benefit. Additionally, deductions are permitted for each of the previous years in an amount equal to the relevant fraction of the total amount divided over 14 years for expenses incurred on the acquisition of patents and copyrights for businesses after 1966 and after 1998. Also, in the case of amalgamation, if the amalgamating company sells or transfers the rights to the amalgamated company being an Indian company, then, in that case, deductions do not apply to the amalgamating company.

Further, by section 35AB, if the assessee acquired know-how for his business in a previous year for which a lump sum consideration was given, one-sixth of the amount so paid shall be deducted in determining the profits and gains of the business for that previous year. The remainder of the amount will be deducted in equal installments over the next five years. In other words, the expense will be deducted in six equal installments over six years.

Income from Copyrights

Deductions on Income from Copyrights is dealt with under Section 80QQA of the Income Tax Act, 1961. It provides that in cases where an author is an individual resident in India, a deduction of 25% is allowed on the income derived by the author in the exercise of his profession in the previous year relevant to the assessment year beginning on April 1, 1980, or to any one of the nine assessment years following the assessment year, or any one of the four assessment years following the assessment year.

However, it is to be noted that no deductions are available in textbooks namely- dictionaries, thesaurus, or encyclopedias. It is also not allowed in books that are prescribed or recommended as a textbook, or included in the curriculum of degree or post-graduate courses.

Royalty on Patents

According to Section 80RRB, on royalties in respect of patents registered on or after the 1st day of April 2003, where the assessee is an individual resident in India, deductions are allowed of an amount equal to the whole of such income or three lakh rupees. In the case of compulsory licensing, the income by way of royalty for deduction shall not exceed the amount of royalty specified under the terms and conditions of the license settled by the Controller under the Patents Act, 1970. Furthermore, section 115BBF provides for a concessional rate of taxation of 10% on royalty income from the exploitation of patents granted under the Patents Act, 1970. To be eligible for this, the eligible taxpayer must be an Indian resident and at least 75% of the expenditure must be incurred in India, provided no other concessional tax rate would be allowed if the same is sought under section 115BBF. Whereas section 80O says that no deductions are to be allowed to income from patents in respect of the assessment year beginning on the 1st day of April 2005, and for the subsequent years.

Intellectual property (IP) holders may benefit from tax-related advantages and deductions that can help reduce their tax liability. These tax provisions may include tax credits, deductions, and other incentives that can be used to offset the costs associated with developing, acquiring, and maintaining IP. To make the most cost-effective use of IP, IP holders need to analyze and understand the various tax provisions that are available to them. This can involve a thorough review of the tax code, consultation with tax experts, and careful planning to ensure that the IP is being utilized in a manner that maximizes tax benefits.

By taking advantage of these tax provisions and carefully managing their IP assets, IP holders can reduce their tax burden and improve their overall financial performance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Intellectual Property Rights Taxability Under GST Laws

Table of Contents

In this article, an attempt has been made to explain the taxability of Intellectual Property Rights (hereinafter called IPR) on the touchstone of Goods & Service Tax Act, 2017 (hereinafter called the Act), with the help of cases of Hon’ble High Courts and Hon’ble Tribunal both pertaining to pre-GST and post GST regime. The Articles are in parts – Part I deals with taxability of IPR – Part –II deals Forward Charge or RCM and Part III deal with rates of Tax.

Factual Matrix:

2: This could be illustrated by way of an example. An Indian Company is availing the Intellectual Property Rights (hereinafter called IPR) related services provided by a Foreign Entity based outside India, who is holding License for Patents for the manufacture of Automobile Parts and who does not have any place of establishment in India.

3. Under Agreement, Indian Company has been granted License by the Foreign Company to make, produce, procure and sell the products outside India, without bringing the same into India and would directly sell the products outside India on High Sea Sales basis. Towards consideration, Indian Company shall have to pay a Royalty to Foreign Company based on the value sale of licensed products outside India.

4: During the pre-GST regime, the Finance Act, 1994 had defined “intellectual property right” to mean “any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright”.

5: Now the question arises as to whether, the grant of patents rights for the manufacture of “goods” for which royalty is being paid by the Indian Co to Foreign Co, would be the supply of “goods” within the meaning of Section 2(52) of CGST Act or supply of “Services” within the meaning of Section 2(108)?. This brings us to the question of whether patents are ‘goods’ as defined in the Sale of Goods Act, 1930. Section 2 (7) of the Sale of Goods Act, 1930 defines ‘goods’ as under:

“(7) “goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;”

6: The Supreme Court in Vikas Sales Corporation v. Comm. MANU/SC/0519/1996 observed that ‘property’ would include things such as patents, copyrights, and trademarks.

7: The Delhi High Court in the case of Telefonaktiebolaget LM Ericsson Vs. Competition Commission of India: MANU/DE/0762/2016 has held as under-

The issue, whether patents are goods, is no longer res Integra.

8: We will have to understand the meaning of the word “Supply” as per under Section 7 of the CGST Act as it is only supplied which is taxable by virtue of Section 9 of the CGST Act. We may cursory look at the provision of Section 7 of the GST Act, 2017, which reads as under:- Section 7 . (1) For the purposes of this Act, the expression “supply” includes–

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b)…………………..

(c)……………………………………..

(d)……………………………………..

9: Further, Para 5 of Schedule II says that the following shall be treated as supply of service and more particularly Clause 5 (c) of Schedule II attached to the CGST Act may please be seen.

5(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

10: Hence, in my view, transfer of right in goods is a supply of service and I am supported by following judgments of Hon’ble High Courts, Appellate Authority of Advance Ruling Authority, and FAQs.

11: The Board also issued a FAQ on GST and question No.15, as is relevant for our purpose, is reproduced below:-

FAQ OF CBIC 15.12.2018

15. Whether the transfer of right to use goods will be treated as a supply of goods or supply of service? Why?

Ans. Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies. Such transactions are specifically treated as supply of service in Schedule-II of CGST/SGST Act.

12: In S.P.S. Jayam and Co. v. Registrar, Tamil Nadu Taxation Special Tribunal and Others, MANU/TN/0420/2004:(2004) 137 STC 117 (MAD), the High Court held that the Royalty received as consideration for use of trademark is the consideration of the transfer of right to use a movable asset and upheld its taxation under the sales tax la ws.

JUDGMENT ON PRE-GST REGIME – TAXABILITY OF IPR.

13: Messrs Inductotherm Pvt. Ltd Vs Comm. The decision on 5 July 2019 – Appeal No.595/2010-DB. (PRE GST REGIME)

Section 65(55a) of the Act defines “Intellectual Property Right” to mean as under:

“Intellectual Property Right” means any right to intangible property, namely, trademarks, designs, patents, or any other similar intangible property, under any law for the time being in force, but does not include copyright.”

14: The Appellate Authority of Advance Ruling Authority of Karnataka in, In Re: United Breweries Limited (23.10.2018 – AAAR – Karnataka): MANU/AI/0010/2018, has observed as under:-

In terms of Section 7(1) of the CGST Act, ‘supply’ also includes within its scope, the activities referred to in Schedule II of the Act which has been categorized as either a supply of goods or a supply of service. Clause 5(c) of the said Schedule II , refers to “temporary transfer or permitting the use or enjoyment of any intellectual property right” as a supply of service.

The phrase “intellectual property rights” has not been defined under the GST law. In a general sense, the term intellectual property right would include the following:-

(a) Copyright

(b) Patents

(d) Designs

(e)Any other similar right to intangible property.

15: In view of the above discussions, there is absolutely no doubt that the “user of the patent granted under the Agreement” is the supply of “service” and is taxable under Section 9 of the CGST Act, 2017. The issue about the rate of tax, forward charge, or reverse charge is being discussed in Part-II.

(A) Whether Royalty being paid on the Merchanting Trade Activity would be a Non-GST Supply and not amenable to RCM. i.e no GST on RCM basis needs to be paid on Rs. 5,500/- as per example taken.

20: First of all, let us understand and appreciate the scope of the NonGST supply. We may have to examine the provision as appearing in Schedule III attached to the Goods & Service Tax Act, 2017 and more particularly Clause 7, which is reproduced below for easy reference:-

Clause 7: Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.

21: The above Clause 7 has been inserted by way of amendment carried out w.e.f. 1.2.2019. The question arises as to whether Clause covers goods or services or both. From the language of Clause 7, it is manifestly clear that Clause 7 specifically talks of only “goods”.

(B) Whether this Royalty under the present Agreement is covered by SAC 9973 i.e Temporary or Permanent Transfer or Permitting the use or enjoyment of Intellectual Property (IP) rights in respect of goods other than Information technology Transfer.

22: Under Section 9 CGST Act , the rate of GST may be notified by the Government. The Notification 11/2017 – Central Tax (Rate) dated 28.06.2017 deals with the supply of services. In terms of the Table in the Notification, under Heading 9973, the ‘Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information and Technology software’ is taxed at 6% whereas, ‘Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information and Technology software’ is taxed at 9%. There is no doubt royalty on the patent is covered by Heading 9973.

(C) Whether this should be treated as Import of Service and whether GST is payable on the RCM basis.

(d). whether there are any provisions under gst laws which can make the place of supply as deemed to be in india as the recipient of services is in india and thereby applying rcm.

23 The Service Tax on Intellectual Property Rights as levied prior to 1.7.2017. Intellectual Property Rights were defined in Section 65(55a) of the Finance Act, 1994 (i.e. Service Tax Law) to mean any right to intangible property namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright.

24: Under the present GST Law, the expression “Intellectual Property Right” has not been defined. It has to be understood as in normal trade parlance as per which intellectual property right includes the following:-

a) Copyright viz. …………………………

b) Patents viz. A document granting an inventor sole rights to an invention;

c) Trademarks viz. A formally registered symbol identifying the manufacturer or distributor of a product;

d) Designs viz. The act of working out the form of something (as by making a sketch, outline or plan)

e) Design viz: The act of working out the form of some things (as by making a sketch, outline or plan)

25: If the supplier of service is located in a non-taxable territory and at the same time, the recipient of services is located in the taxable territory (i.e. in India), GST is liable to be paid under reverse charge. Notification Nos. 13/2017-CT (Rates) and 10/2017-IT (Rates) dated 28- 6-2017

26: IGST is not payable on import of services under reverse charge if the value of royalty and license fee was included in the customs value of goods imported – (Notification No. 6/2018-IT (Rate) dated 25-1-2018 and FAQ issued by CBI&C on 15-12-2018. )

Import of service

27: As per Section 2(11) of IGST Act, import of service means the supply of service, where,

a) Supplier of service is located outside India

b) Recipient of Service is located in India

c) The place of supply of service is in India.

Taxability of Import of Service under GST includes the following: –

a) Import of service for a consideration whether or not in the course or furtherance of business [ Section 7 ]

b) Import of service without consideration by a taxable person from a related person or from any of his establishment outside India, in the course or furtherance of business [ Schedule I to CGST Act ].

28: The Division Bench of Hon’ble Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. vs. Union of India (23.01.2020 – GUJHC): MANU/GJ/0046/2020, has interpreted what is meant by the import of service:_

Sub-section (11) of Section 2 of the IGST Act defines the term ‘import of services’. The relevant extract of the said section is reproduced as under: Section 2(11) ‘import of services’ means the supply of any service, where(i) the supplier of service is located outside India; (ii) the recipient of service Is located in India; and (iii) the place of supply of service is in India;”

28.1: Thus, the import of services means the supply of service where the supplier of service is located outside India, the recipient of services is located in India; and the place of supply of service is in India.

29: The CESTAT Delhi Bench in the case of Bharat Oman Refineries Ltd. vs. CCE and ST (21.03.2017 – CESTAT – Delhi): MANU/CE/0206/2017 had observed and noted as under:-

The Tribunal had occasioned to examine similar issues involving technical collaboration and transfer of the intellectual property right from foreign companies to Indian recipients. It was held that when the agreement is for transfer of exclusive/non-exclusive technical knowhow the consideration received cannot be taxed under consultancy service.

IMPORT OF SERVICE AND PLACE OF SUPPLY DEFINED.

30: As per Section 2(11) of IGST Act, import of service means the supply of service, where,

31: In view of the above discussions, there is absolutely no doubt that there is an import of service and the place of supply of service in India and GST is payable on Reverse Charge Basis.

WHETHER GST IS PAYABLE ON RCM BASIS:

32: In terms of Notification no.10/2017-IT(R) dtd 28.06.2017, one of the notified categories on which GST is applicable under RCM is “any service supplied by any person who is located in non-taxable territory to any person other than non-taxable online recipient”.

33: IGST liability under RCM in case of Import of service has to be paid in cash/bank. GST ITC to the extent of IGST paid can be availed and utilized in the same month subject to ITC eligibility.

Place of Supply in case of Import of Service

34: In case of import of service, if the nature of service does not fall under the one specified under Section 13(3) to 13(13) of IGST Act, then the place of supply shall be the location of the recipient of service. Undisputedly, the import of service from a person outside India to a person located in India does not fall under any of the sub-sections 13(3) to 13(13) of the IGST Act. Therefore, there is no doubt, IGST is to be discharged under RCM when the recipient is in India.

13.4 RCM would generally be applicable in the cases wherein the place of supply would be that of the recipient of service (generally located in India).

RECIPIENT OF SERVICE DEFINED

13.5 The term ‘recipient’ is not defined in the IGST Act. However, subsection (24) of Section 2 of the IGST Act states that the words and expression not defined in the IGST Act but defined in the Central Goods and Services Act, 2017 (CGST Act), the Union Territory Goods and Services Tax Act, 2017 and the Goods and Services Tax (Compensation to States) Act, 2017, shall have the same meaning as assigned to them in the said Acts.

13.6 The Sub-section (93) of Section 2 of the CGST Act defines the term ‘recipient’ as under:

“(93) ‘recipient’ of supply of goods or services or both, means

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

In view of the above, there is no doubt that the Licensee Company is a recipient of service.

POSITION IN PRE-GST REGIME

13.7 In the pre-GST regime, the import of IPR Service was also subject to payment of Service Tax. In support of which, referring to a judgment of Division Bench of Delhi High Court in the case of Mccann Erickson (India) Ltd. vs. CST (19.09.2019 – DELHI HC): MANU/DE/3963/2019 wherein it has been observed as under:

Section 66A of the Finance Act, 1994 makes the recipient of any service, specified in Section 65(105) of the Finance Act, 1994 – which would cover all “taxable services” – received by a person located in India, from a service provider located outside India, liable to pay Service Tax thereon as if he had himself provided the service in India. This, in taxing parlance, is known as payment on a “reverse charge basis”. In the Service Tax universe, Service Tax is payable, on reverse charge basis in various circumstances, chiefly in cases of “import of service”, i.e. where the Service Tax provider is located outside India and the Service Tax recipient is located in India, and where the service provider is a Goods Transport Agency (GTA)

ADVANCE RULING AUTHORITY

13.8 In Re: Udayan Cinema Pvt. Ltd. (26.02.2019 – Authority For Advance Rulings West Bengal): MANU/AR/0050/2019

The Applicant intends to produce a feature film, a portion of which is planned to be shot at locations outside India. For this purpose, he is in the process of appointing CDI Virtual Films Inc. (hereinafter the CDIVF) as a Line Producer in Brazil. He seeks a ruling on whether he is liable to pay IGST on the reverse charge on the payments to be made to CDIVF and, if so, what should be the rate depending upon the classification of the service of a Line Producer. He also wants to know whether the reimbursements made on an actual cost basis will also be subject to IGST.

The service being supplied is not, therefore, classifiable as the one specified in sub-sections (3) to (13) of section 13 of the IGST Act, 2017. The transaction between CDIVF and the Applicant is, therefore, import of service and constitutes an inter-State supply within the meaning of section 7(4) of the IGST Act, 2017.

13.9 In terms of Notification no.10/2017-IT(R) dated 28.06.2017, one of the notified categories on which GST is applicable under RCM is “any service supplied by any person who is located in non-taxable territory to any person other than non-taxable online recipient”. IGST liability under RCM in case of Import of service has to be paid in cash/bank. GST ITC to the extent of IGST paid can be availed and utilized in the same month subject to ITC eligibility.

(E). Whether RCM will be payable on import of Services by SEZ. i.e on Rs. 600 as per example.

14. For answering the above query, it would be necessary to understand the implications of provisions of the SEZ Act and Section 26 of this Act, as is relevant for our purpose, is reproduced below:

Section 26(1): Subject to the provisions of sub-section (2), every developer and entrepreneur shall be entitled to the following exemptions, drawbacks, and concessions namely:-

(a): exemption from any duty of Customs, under the Customs Act, 1962, or the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into, services provided in, in Special Economic Zone or a Unit, to carry on the authorized operations by the developer or entrepreneur.

(b)………………………….

14.1 The Ministry of Finance has issued an Exemption Notification No.18/2017 Integrated Tax (Rate) dated 5.7.2017 which exempts services imported by a unit or a developer in the Special Economic Zone for authorized operations, from the whole of the integrated tax leviable thereon. In other words, if SEZ Unit or an SEZ Developer imports any service, GST is not payable by SEZ Unit or Developer.

14.2 In the pre-GST regime, the import of services was also exempt from the levy of Service Tax. The CESTAT in the case of Societe Generale Global Solutions Centre Pvt. Ltd. vs. Comm. (31.01.2020 – CESTAT – Bangalore) : MANU/CB/0031/2020, has observed as under:-

I find that the appellant is an SEZ unit and as per Section 26 read with Rule 31 of SEZ Rules, 2006 along with Section 51 of SEZ Act, the SEZ Act has an overriding impact over other laws and other SEZ units are exempt from payment of service tax for any service which is used for authorized operations.

14.3 The Hon’ble Tribunal has held that by virtue of provisions of Section 26 read with Section 51 of SEZ Act, no levy of duty or tax shall be payable, inter-alia, on the import of services. The CESTAT in the case of M/s. Intas Pharma Limited vs. Comm.: MANU/CS/0128/2013, while dealing with the exemption as provided under Section 26 of SEZ Act, has observed as under:-

The immunity to service tax provided under Section 7 or 26 of the 2005 Act cannot be eclipsed by the procedural prescriptions of Notification Nos. 9/2009 or 15/2009. These notifications are calibrated to enable recipients of taxable services which are exempt from the liability to tax under the provisions of the 2005 Act, to claim a refund of the service tax, wherever whether assessed and collected by Revenue or remitted by the service provider inadvertently

14.4 Further Section 51 of the SEZ Act has an overriding effect on other laws. Section 51 is reproduced below:-

The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act.

14.5 The Hon’ble CESTAT in the case of Lanco Solar Pvt. Limited vs. Comm. of Customs,- 26.02.2020 – MANU/CE/0072/2020 Tri, has observed as under:-

I hold that the ab initio exemption provided under the SEZ provisions, having an overriding effect on the Service Tax provision. Under such a position of law, a notification under service tax cannot restrict or provide a time limit for a grant of the refund to the SEZ unit and developer. Accordingly, impugned orders are set aside and appeals are allowed.

14.6 In view of the elaborate discussions, there is absolutely no doubt that no GST is payable on the import of services by SEZ Unit or SEZ Developer.

(F). If RCM is at all applicable then whether the applicable rate is 12% or 18% as per SAC 9973.

15. Under Section 9 CGST Act, the rate of GST may be notified by the Government. Notification 11/2017 – Central Tax (Rate) dated 28.06.2017 deals with the supply of services. In terms of the Table in the Notification, under Heading 9973, the ‘Temporary or Permanent Transfer” or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information and Technology software’ is taxed at 6% whereas, ‘Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information and Technology software’ is taxed at 9%.

15.1 However, in terms of the Explanation Clause of the Notification (clause 4), a reference to ‘Chapter’, ‘Section’ or ‘Heading’, wherever they occur, unless the context otherwise requires, shall mean respectively as ‘Chapter’, ‘Section’ and ‘Heading’ in the annexed scheme of classification of services (Annexure). In such Annexure, it is only ‘Licensing services for the right to use the intellectual property and similar products’ that have been mentioned under Heading 9973 and Group 99733.

15.2 Notification No. 1/2017 – Central Tax (Rate) dated 28.06.2017 deals with the rates on the supply of goods. Now, as we have discussed above, copyrights and patents are not moveable properties, and therefore, this notification cannot be applied to copyrights and patents at all. While trademarks are not covered anywhere in the entry, there is a residuary entry under which all supplies not mentioned are taxed at 9%.

15.3 On the other hand, Notification No. 11/2017 , which deals with services has no residuary entry. Hence, if no rate is mentioned, then there is no GST on such supplies at all. Since assignments of intellectual property are not mentioned in the Annexure to Notification No. 11/2017 , there can be no GST on the same. However, in the present, there is no doubt that there is no assignment but rather “License has been given”. Therefore, GST shall be payable at the rate of 12%.

DIFFERENCE BETWEEN LICENCE AND ASSIGNMENT

15.4 Now let us try to understand the difference between the “License” and “Assignment”. License, under common law, is a permission given to a person to do or enjoy something that he otherwise does not have the legal right to do or enjoy. In simple words, it “merely makes lawful which would otherwise [but for the license] be unlawful”. Therefore, a license does not transfer any proprietary interest in the object over which it is given. For instance, if a person is given the license to project a film in his theatre, he only has the license to use the copyright in the film to that extent. He does not own anything in the copyright of the film. Similarly, a distributor of some trademarked goods may have the permission to use the trademark on promotional material or on the packaging. This will not give him any interest in the trademark itself.

15.5 On the other hand, an “assignment” is a transfer of the right in question. When a patent, trademark, or copyright is assigned, the assignee acquires the right – he becomes the owner of that right. Of course, it is not necessary that the entire right is assigned. Just as a part of a property can be sold, a part of the rights in a trademark, copyright, or patent may be assigned. For instance, a person could assign only the DVD publishing rights of a film to another person. A person could assign the right to use a trademark in a particular State in India, or a person could assign the right to make a particular kind of product using a patent. Under Sec. 19 of the Copyright Act, 1957, the assignee, for the part of the copyright assigned, is treated as the “owner” of the copyright. Similarly, under Sec. 45 of the Trademarks Act, 1999, the assignee is treated as the “proprietor” of the part of the trademark assigned to him.

15.6 Therefore, the crucial difference between a “license” and an “assignment” is that the licensee only gets the right to do some act that he cannot otherwise do. A further concomitant of a license is that it is held only at the pleasure of the licensor. A licensor can, at any time, revoke his license, and the licensee will no longer have that right. Even an irrevocable, perpetual license can be revoked, subject only to damages or specific performance of the license agreement.

15.7 An assignee, on the other hand, becomes the owner of the right assigned to him. He can do as he pleases with the right. An assignment cannot be revoked, it is akin to a sale of those rights. This would mean, therefore, that an assignment is a “transfer” of the IP in question, whereas a license, whatever the terms of it may be, is only permission given for consideration, and not a “transfer”.

GST Rates of IPR:

To summarize, the CGST liability of the various transactions is as per the below table. An equal amount of SGST will be applicable.

Therefore the applicable IGST Rate shall be 12%.

4. However recently the Indian Company has stopped manufacturing these in the Domestic Unit and only manufacturing in the SEZ unit and from there, exporting to Taiwan. On this sale also, Royalty is being paid with respect to sale amount.

Read the copy:

Intellectual Property Rights Taxability Under GST Laws

PK Mittal BCom Delhi university 1975 LLB Delhi University 1978 FCS Fellow Member of ICSI 1992 1982 to 1992 as CS in Corporate Head Legal Apollo Tyres Ltd 1986 to 1992 1993 onwards Advocate in Delhi High Court CESTAT NCLT = Practcising Indirect Tax and Corporate laws 1993 to till date. Written more than 100 Article on Company Law and Corporate laws Indirect Tax Speaker on Indirect Tax Co Law and IBC in various Seminars Workshop organised by ICAI ICSI and ICMA and other organisations Convenor Core Group on GST of ICSI

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Home > Articles > Article Details

GST Implications on Intellectual Property Rights

06 March 2023 Khurana and Khurana, Advocates and IP Attorneys Tanya Saraswat India

In 2017, the Goods and Services Tax (GST) was introduced as a destination-based consumption tax subsuming in itself, the erstwhile taxes like sales tax, service tax, excise etc. under the new regime, the tax is levied simultaneously by the Central and State/Union Territory government and such tax is levied on the supply of Goods or Services or both. It is touted as the biggest fiscal reform the country has ever witnessed. The immediate and notable change visible, is change in prices. The government has claimed that essential commodities will be kept outside the purview of the new regime. The aim to subsequently reduce the burden laid upon the consumers, which resulted in a “cascading tax” effect.

As per Section 9(1) of the Central Goods and Services Tax Act, 2017, “there shall be levied a tax called the central goods and services tax on all intra-state supplies of goods or services or both, as maybe notified by the government on the recommendations of the Council”.

The term ‘ Intellectual Property Rights ’ is not defined under the GST Law but MF(DR) circular No. B2/8/2004 dated 10/09/2004 states that intellectual property emerges from application of intellect, which may be in the for of an invention, design, product, process, technology, book, goodwill etc. Intellectual property rights are similar to any other property right. They allow the creators or innovator or authors of trademarks, patents or copyrighted works to benefit from their work or investment in a creation. IPR is becoming an integral part of businesses. However, the intangible nature of intellectual property presents difficulties in comparison with traditional property such as land or goods. The ‘indivisible’ nature of intellectual property also allows many people to have an unlimited access at once.

Transfer of IPR: Goods or Service?

Intellectual Property Rights owners are expanding the usage of their properties by way of giving license or assignment. To expand market share, the businesses are acquiring/using each other’s intangible properties. Therefore, the transfer of rights can be done in two ways: Right holders can give their rights by a licensing agreement or by way of an assignment. On one hand, licensing agreements do not transfer the proprietary rights whereas assignment gives the entire ownership of the properties.

Under the pre-GST regime, the permanent transfer of intellectual property was not considered as supply of service. The circular stated since the original owner does not remain the holder of intellectual property post transferring, it cannot be said as a supply of service. The opinion was also reiterated in AGS Entertainment Pvt. Ltd. vs. Union of India [1] by the Madras High Court. In another pronouncement by the Customs, Excise and Service tax Appellate Tribunal stated that there is no service tax applicable on the permanent transfer of intellectual property.

Post the introduction of GST, the tax to be levied on intellectual property was provided under heading 9973 of the Central Tax (Rate). It states that under services, the temporary or permanent transfer of Intellectual property other than Information Technology Software is taxed at 12%. Similarly, under goods, the temporary or permanent transfer of IP other that Information Technology Software is taxed at 12%. It may seem through a bare reading that all kinds of services are capable of a permanent transfer. However, a reference to the heading of 9973 provides the contrary. The heading reads as “Leasing/rental services with or without operator”. It clarifies that the scope of the heading is limited to the particular services of leasing or rental. The broad language of 9973 is restricted by its heading. The author is of the opinion that except for leasing and rental services, the transfer all other services are only temporary in nature and in some instances, leasing and rental services also form a part of temporary transfer. On the other hand, the transfer of any goods can be considered as a permanent transfer. Therefore, apart from the exception of leasing and rental services, temporary transfer shall be regarded as supply of service and permanent transfer as supply of goods. Evidently, the position of law more or less remains the same.

GST Levied on the transfer

Gst on different aspects of ipr.

Through a notification issued on June 28, 2017, the government fixed a 5 percent GST rate on food items packaged in unit containers bearing registered brand names. The term registered brand name is defied as the one actually on the Register of Trademarks and in force under the Trademarks Act, 1999 . With regards to the term ‘packaged’, the Finance Ministry clarified that goods such as chhena, paneer, natural honey, wheat, rice, pulses and cereal flours, if sold loosely shall not be taxed under GST. The rationale behind imposing a tax of 5% is to level the playing field between high-profit margin players and the companies selling non-branded products in the market. But this action is posing more problems. This exemption in a way is pulling down the culture of trademark protection. Due to this, the choice between registering a trademark or imposing an additional 5% cost, has to be made by the companies.

Even the big established firms in the market have started taking an undue advantage of the provision. Although the prime objective was to incentivize small farmers, the established companies, especially in the rice market, which are not registered with the Registrar of Trademarks, take the advantage.

From the consumers’ perspective, the new GST policy is likely to increase the supply of counterfeited products in the market. Consumers might be misled about the origin and quality of the product due to absence of trademark. It would not only pose a threat to company’s goodwill but also health of the consumers due to low quality. The policy also undermines the steps taken by the government to encourage MSMEs to register their brand.

It is essential that more than protecting one segment of the market, the policies must focus on ensuring homogeneity for all the players in the market.

Section 9(1) of the GST Act clearly provides that the tax has to be deposited by the person supplying the goods and/or services. On the other hand, Section 9(3) incapsulates the concept of Reverse Charge Mechanism. The principle states that the tax liability must be discharged by the recipient of the goods and/or services and not by the supplier. The government, on the recommendation of the GST Council, has the powers to specify the categories of such supplies of goods and/or services to be treated as per the RCM.

Pursuant to this power, the government came out with the notification, Entry no. 09 which states if the services are supplied by an author, music composer, photographer, artists or like persons, by way of transferring or permitting the use of copyright covered under Section 13(1)(a) of Copyright Act, 1957 which relates to original literary, artistic or musical work, to a publisher, music company or producer, then the said recipient will be liable to discharge the tax liability.

For example: XYZ musician wishes to supply her work to ABC music producer. XYZ shall be the supplier and ABC shall be the recipient of supply of service. According to the principle of Reverse Charge Mechanism, ABC, being the recipient, shall be liable to discharge the tax liability.

Intellectual Property Rights are at the nascent stage in the software industry. Trademarks, Patents, Copyrights and Trade Secrets are prevalent in the software industry. The patents, copyrights and trade secrets protect the technology itself. On the other hand, trademarks protect the names or symbols that are used to distinguish the product in the marketplace. The patent protects the novelty and inventive step in the innovation whereas copyright tends to protect the expression of idea used by the author.

The CGST Act defines the development of software as service but a software in its physical form is ‘goods’ as under the Customs Tariff Act. In Tata Consultancy Services vs. State of Andhra Pradesh [2] , the hon’ble court held that the canned software like Oracle and Lotus are ‘goods’. From the moment the copies are made, produced and marketed, the software becomes goods. Therefore, while levying GST, the authorities must be diligent about the distinction between software as ‘goods’ and ‘services’.

To avoid any convenience and chaos, the authorities have decided to keep the GST rate of software as goods and software as a service in the form of development, same. Software can be transferred on temporary or permanent basis. Temporary transfer of rights of software is a service. On the other hand, the permanent transfer of the rights of software is under goods. The GST rate in both the scenarios is 18%.

It is essential to consider the place of supply as well while imposing GST. Software is intangible and it can exist on multiple platforms at once. Therefore, the place of supply of development of software and services on software is the location of the recipient.

Franchisee Fees and Royalty

The franchisee fees and royalty received by the owner under the franchise agreement for the use of trademark, copyright, patent or any other proprietary knowledge protecting mechanism are classified under “ Other professional, technical and business services ” and accordingly, attract the GST @ 18%.

With the introduction of GST at nascent stage, it is still to be seen as to how the implementation is carried forward. At the very least, the GST has brought about a positive change by doing away with the need to classify transactions as either relating to goods or services since all transactions would now be concurrently levied tax by both the Centre and the States (provided transaction is intra-state supply; inter-state to be levied exclusively by Centre). The GST has also subsumed numerous central, state and municipal taxes and by doing so, will ensure that indirect tax rates and structures are common across the country thereby increasing certainty and ease of doing business. It was essentially the need of the hour, which the current government understood and implemented. However, it gave rise to conflict of interest between the two important laws: Trademarks and Indirect Taxation. The check and balance system needs to be incorporated to initiate the efficiency. Therefore, the future clearly holds the future of GST.

[1] W.P.No.29398 of 2010.

[2] (2004) 271 ITR 401.

Khurana and Khurana, Advocates and IP Attorneys

Tanya Saraswat

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Temporary or permanent transfer of intellectual property attracts 12% GST

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GST Implication on Intellectual Property

July 31, 2017
India , Intellectual Property , News & Updates

GST IMPLICATION ON INTELLECTUAL PROPERTY

Once upon a time . . .

Before the Goods and Services Tax (GST) regime,the Union government exclusively used to levy tax on transactions relating to Intellectual Property (IP) rights if such were classified as services [1] (under Service Tax, Chapter V, Finance Act, 1994), while the State governments used to levy tax on IP rights if the transaction involving such were classified as sale/deemed [2] sale of goods [3] (under State Sales Tax/State Value Added Tax or Central Sales Tax which was collected and retained by the originating State). The aforesaid indirect tax system required interpretation on the classification of the transaction.This often led to double taxation when the same transaction was subjected to both sales tax and service tax due to the industry being cautious so as to avoid penalties of avoiding tax.

Growing Stronger Together

With the advent of GST, the need to classify transactions involving IP as either relating to rendering of service or sale/deemed sale of goods was absolved. This is due to GST being concurrent [4] in naturewith the Centre and the States simultaneously and seperately levying it on a common base or transaction irrespective of its classification. It is pertinent to note that GST would be applicable on supply of goods or services [5] as against the previous concept of tax on the manufacture of goods or on sale of goods or on provision of services.

The GST to be levied for intra-state supply of goods and services by the Centre would be called Central GST (CGST) and that to be levied by the States [including Union territories with legislature] would be called State GST (SGST). On inter-state supply of goods and services, Integrated GST (IGST) is to be collected by the Centre. [6] IGST would also be applicable on imports. [7] GST is a destination based consumption tax, that is, the tax is received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured.

Rates in relation to Intellectual Property

Section 9 of the CGST, 2017 [corresponding section 9 of SGST] states that the CGST (or SGST as the case may be) shall be levied on the transaction value [8] or the price actually paid or payable for the said supply of goods and/or services and at such rate to be notified on the recommendations of the GST Council. Subsequently, the rates have been notified as follows [9] :

Under Sl. No. 17, Heading 9973-

Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software at the rate of 12% (6% CGST and 6% SGST).
Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information Technology software at the rate of 18% (9% CGST and 9% SGST).

“Information Technology software” means [10] any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.

Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration at the same rate of central tax as on supply of like goods involving transfer of title in goods.
Any transfer of right in goods or of undivided share in goods without the transfer of title thereof at the same rate of central tax as on supply of like goods involving transfer of title in goods.
Brief Analysis

It is pertinent to note that under the GST regime, permanent transfer/sale of a particular intellectual property right would be considered as supply of service and a 12% tax (6% CGST and 6% SGST) would be levied on the transaction price provided such IPR is not in respect of software. Temporary transfer or permission to use or enjoy (license or assignment) any IPR would also be taxable at the same rate provided it is not relating to IT software.

Earlier, permanent transfer was not considered as declared service and hence not exigible under service tax. It is also to be noted that earlier the exclusivity test (whether transfer/assignment/license is exclusive to the transferee) as laid down in the BSNL judgment [11] was the standard for determining whether the transfer would amount tosale (and hence, subject to sales tax) or license (and hence, subject to service tax). Under the GST it is immaterial for the purpose of taxation whether the said transfer is exclusive or for that matter temporary since it will be subjected to the same concurrent tax.

It is also pertinent to note that sale or licensing of intellectual property pertaining to software would be charged 18% tax (9% CGST and 9% SGST). Even though GST has done away with the need to classify transactions in respect of goods and services, the Centre has in a way reversed the TCS judgment [12] which had held that transactions relating to shrink wrapped software (software bound with product) was to be considered as transfer of the right to use such software goods (and hence deemed sale of goods [13] ) while the same is to be treated as service due to the notification. [14]

It may also be noted that the Constitution (One Hundred and First Amendment) Act, 2016 [by which the GST was introduced in the constitutional framework] did not amend Article 366(29A)(d) which specifies that the transfer of the right to use any goods is to be deemed as a sale of those goods. However with the aforesaid notification [15] , the Centre while notifying the taxation rate, has in a way classified the transfer of the right to use any goods to be treated as service.

Reverse Charge on Copyright

GST is to be levied on the person supplying the goods and/or services. However, Section 9(3) of the CGST Act, 2017 states that the Centre may specify certain categories of supply of goods andservices on which the tax is to be paid on reverse charge basis by the recipient of the supply. Therefore, as per notification [16] , the tax on the supply of services by an author, music composer, photographer, artist, etc. by way of transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer etc., shall be borne by the said publisher, music company or producer.

“Registered Brand Name” in the context of GST

It is to be noted that the supply of certain goods, such as chena or paneer, natural honey, wheat, rice and other cereals, pulses, flour of cereals and pulses, other than those packed in unit container and bearing a registered brand name, is exempted from CGST [17] . Supply of such goods, when put up in unit container and bearing a registered brand name attracts 2.5% CGST rate [18] .

Subsequently, doubts were being raised as to the meaning of “registered brand name”. On July 5, 2017, the Finance Ministry issued a press release [19] clarifying the same. The statement noted that “registered brand name” has been defined in the notifications [20] and the same would mean brand name or trade name which is registered under the Trade Marks Act, 1999. In this regard, registered trade mark means a trade mark which is actually on the register and remaining in force [21] .

Thus, unless the brand name or trade name is actually on the Register of Trade Marks and is in force under the Trade Marks Act, 1999, GST rate of 5% (2.5% CGST and 2.5% SGST) will not be applicable on the supply of such goods. [22] It is pertinent to note that this may lead up to a situation wherein a particular company selling, say, cereals in unit containers bearing a brand name but such brand name is not on the Trade Mark Register and hence not in force, would be exempted from GST. Such situation would also extend to new players in the cereals (or other exempted goods) industry who have applied for trademarks and whose marks have not been registered. The relevant question posited by this clarification is that whether smaller players would now be discouraged from filing for trademark registration due to availing tax exemption which in turn would reduce their costs? This might go against the objective of the National IPR Policy 2016, which encourages commercialization of IP at the grass-root level. Still considering the importance of Intellectual Property, such manufacturers need to understand the gravity of the matter that non registering of Trade Mark is not favourable to them considering the market for their products which is ultimately identified by their brand name and hence they cannot afford to not protect their brand name only to save some minor percent of GST. Thus, importance/benefits of Trade Mark Registration when compared to the applicable GST for products under Trade Mark which is not on register, it is indeed crystal clear that manufacturers should protect their IP which in all circumstances should be of paramount interest which help reap profits by leaps and bounds.

About the Author: Pratik Das, Legal Intern at Khurana and Khurana, Advocates and IP Attorneys and can be reached at [email protected]

References :

[1] Intellectual Property Service meant the temporary transfer or permission to use or enjoy any intellectual property right.

[2] Article 366 (29A) (d) of the Constitution specifies that the transfer of the right to use any goods to be deemed as a sale of those goods.

[3] Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh , (2005) 1 SCC 308 held that the term “goods” under Article 366 (12) of the Constitution includes intangible/incorporeal property which is capable of abstraction, consumption and use, and which can be transmitted, transferred, delivered, stored, possessed, etc.

[4] Article 246A, Constitution (One Hundred and First Amendment) Act, 2016.

[5] Articles 366(12A), 286(1A), 286(1B), 286(2), Constitution (One Hundred and First Amendment) Act, 2016.

[6] Article 269A, Constitution (One Hundred and First Amendment) Act, 2016.

[8] Section 15, CGST, 2017.

[9] Notification No. 11/2017-Central Tax (Rate), dated 28 th June, 2017 [which notify the rates for supply of services under CGST Act].

[10] Ibid at Explanation (v).

[11] Bharat Sanchar Nigam Ltd. v. Union of India , (2006) 3 SCC 1.

[12] Supra at 3.

[13] Supra at 2.

[14] Supra at 9.

[15] Ibid .

[16] Notification No. 13/2017-Central Tax (Rate), dated 28 th June, 2017 [which notify the categories of services on which tax will be payable under reverse charge mechanism under CGST Act].

[17] Notification No. 2/2017-Central Tax (Rate), dated 28th June, 2017 [which exempts intra-state supply of the specified goods from CGST].

[18] Notification No. 1/2017-Central Tax (Rate), dated 28th June, 2017 [which notifies the CGST rates of intra-state supply of goods].

[19] Available at http://pib.nic.in/newsite/PrintRelease.aspx?relid=167146 .

[20] Supra at 17, 18.

[21] Section 2(w), Trademarks Act, 1999.

[22] Supra at 19.

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Permanent transfer of Intellectual Property (IP) right attracts 18% GST
GST case studies on Intellectual Property Rights
GST on Intellectual Property Rights Related Services
18% GST on Temporary or Permanent Transfer or Permitting the Use or
GST Liability on Intellectual Property Right (IPR) Related Services
CBIC increased GST rate on permanent transfer of Intellectual Property

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COMMENTS

Permanent transfer of IPRs would be subject to 18% GST ...
Notification no. 13/2021 - Central Tax (Rate) dated 27-10-2021. Based on the recommendation of the 45th GST Council meeting, GST rate on the permanent transfer of the Intellectual Property right (IPR), in respect of goods other than IT software, under the service tariff notification was increased from 12% to 18% by Notification no. 06/2021 ...
Taxability Position on IPR Under GST, GST rate on permanent transfers
GST rate on permanent transfers of IPR in respect of goods has been increased by the CBIC. Permanent intellectual property law transfer is not regarded as a provision of service. Despite the fact that the applicable tax on both permanent and temporary transfers of intellectual property rights is now the same, the GST law has clarified that only ...
GST on Intellectual Property Rights
In the said press release at entry (iii) of part (B), the GST council proposed that, irrespective of permanent intellectual property transfer is a supply of Goods or Services, the rate of GST would be as under -. GST rate would be 12%, in case of the permanent transfer of intellectual property rights other than Information Technology Software ...
Temporary vs. Permanent Transfer of IPR: An Analysis of GST rates
Announcement dated October 27, 2021 (Notice No. 13/2021 central tax rate (tax rate) revised the tax rate for goods and services from 12% to 18% in case of permanent transfer of intellectual property rights and additionally changed Notice No.01 /2017 2017 The central tax (tax rate) of 28 June, is intended to harmonize the VAT rate for the ...
Article: Whether Transfer of IPR is Considered Supply of Service or
Pre-GST Regime . Prior to 2017, permanent transfer of intellectual property was not considered as supply of service. As per the C.B.E. & C. Circular F. No. B2/8/2004-TRU, dated 10-9-2004, "A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer ...
India: Taxability Of Intellectual Property Rights (IPR) Under GST
Further temporary or permitting the use or enjoyment of IPR in respect of IT software is taxable @18% (9% CGST+9% SGST) as 'Licensing services for the right to use intellectual property and similar products'. Permanent transfer of IPR is treated as supply of goods. Permanent transfer of an IPR is considered as supply of goods and is leviable to ...
Applicability and Implication of Goods and Services Tax on Intellectual
(i) permanent transfer of Intellectual Property other than Information Technology software attracts GST at the rate of 12%; and (ii) permanent transfer of Intellectual Property in respect of ...
India: Taxability Of Intellectual Property Rights (IPR) Under GST
Permanent transfer of IPR is treated as supply of goods. Permanent transfer of an IPR are considered as supply of goods and is leviable to GST @12% provided such IPR be not in relation to IT software inside varying of Notifications Does. 41/2017-CT (Rate), dated 14.11.2017.
Updated Tax Rates For Transfer Or Permitting The Use Of Intellectual
Following which the state governments released a notification updating the State Goods and Services Tax (SGST) levied on IP from 6% to 9%. This as a result increased the overall GST levied on temporary or permanent transfer or permitting the use of enjoyment of Intellectual Property (IP) right, from 12% to 18%.
PDF Rights Service Tax & GST Implications
Appellant under the head 'Temporary transfer of Intellectual Property Rights ('IPR')'. • The Appellant contended that since the assignment of IPR was perpetual, exclusive, and irrevocable, ... it may be challenged that there is no GST on permanent transfer of IPR. The challenge to the leviability becomes stronger in case the transfer ...
GST Liability on Intellectual Property Right (IPR) Related Services
The GST rate is 18% (9% CGST and 9% SGST/UTGST) or 18% IGST. Temporary or permanent transfer or permitting use or enjoyment of Intellectual Property Right (IPR) in respect of software falls under service group 99733. GST Rates & HSN for Software as goods :- Permanent transfer of IPR of software is 'goods' and GST rate is 18% [9% CGST plus 9 ...
Permanent Transfer of IPRs attracts 18% GST: CBIC
The Central Board of Indirect Taxes and Customs ( CBIC ) has notified that permanent transfer of IPRs attracts 18% GST. In exercise of the powers conferred by sub-section (1) of section 9 and subsection (5) of section 15 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council ...
The Conundrum Of Taxing IPR: The Achilles Heel Of Taxation ...
Current position. Recently, the 45 th GST Council made the recommendation to increase the applicable tax rate for the permanent transfer of intellectual property rights in respect to goods from 12% to 18% vide Notification No. 13/2021-Central Tax (Rate). Earlier the rates applicable to the permanent or temporary transfer of IPR in respect to ...
CBIC increased GST rate on permanent transfer of Intellectual Property
The CBIC vide Reporting No. 13/2021-Central Tax (Rate) dated October 27, 2021 has further amended Notification None. 01/2017- Central Tax (Rate) dated June 28, 2017 to align GST pay on permanent takeover of Intellectual Property Right ("IPR") int respect of goods for increase GST rate coming 12% to 18% and made it at par with
GST on Intellectual Property Rights Related Services
GST Rates and HSN in case of Software as Services. Temporary transfer of Intellectual Property Rights of software would get acknowledged as service. Applicability of GST on Intellectual Property Rights for software as "Services" is 18% GST rate (9% UTGST/SGST+ 9% CGST) or 18% IGST. Temporary or permanent transfer or enjoyment of IPR with ...
PDF Goods and Services Tax Council
Goods and Services Tax Council | GST
Navigating The Tax Implications Of Intellectual Property Rights
As such, the GST law recognizes IPR as a "good," but a license to use the same is considered a "service." At the same time, the permanent transfer of IPR is "good", and the temporary transfer of the right to use IPR is recognized as a "service". Various judicial pronouncements, such as Commissioner of Sales Tax v.
Intellectual Property Rights Taxability Under GST Laws
In terms of the Table in the Notification, under Heading 9973, the 'Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information and Technology software' is taxed at 6% whereas, 'Temporary or permanent transfer or permitting the use or enjoyment of ...
GST Implications on Intellectual Property Rights
Post the introduction of GST, the tax to be levied on intellectual property was provided under heading 9973 of the Central Tax (Rate). It states that under services, the temporary or permanent transfer of Intellectual property other than Information Technology Software is taxed at 12%. Similarly, under goods, the temporary or permanent transfer ...
Temporary or permanent transfer of intellectual property attracts 12% GST
This transaction is transfer of intellectual property. As per entry no. 5(c) of Schedule II to the CGST Act, 2017, "temporary transfer or permitting the use or enjoyment of any intellectual property right" is a service.
CBIC increased GST rate on permanent transfer of Intellectual Property
And CBIC vide Notification Nope. 13/2021-Central Tax (Rate) outmoded October 27, 2021 has further amended Warning No. 01/2017- Central Tax (Rate) dated June 28, 2017 to align GST pricing on permanent transfer of Intellectual Characteristics Right ("IPR") in regard of merchandise by increasing GST rate from 12% go 18% and made it at parity with
GST Implication on Intellectual Property
Brief Analysis. It is pertinent to note that under the GST regime, permanent transfer/sale of a particular intellectual property right would be considered as supply of service and a 12% tax (6% CGST and 6% SGST) would be levied on the transaction price provided such IPR is not in respect of software. Temporary transfer or permission to use or ...
GST HS Code and rates for intellectual property rights
(i) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software. 6: 6: 12: None-9973 (ii) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of Information Technology software.

Permanent transfer of IPRs would be subject to 18% GST: Notification

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Taxability Position on IRP Under GST

GST rate on permanent transfers of IPR in respect of goods has been increased by the CBIC

Permanent transfers Vs Temporary transfer : Supply of goods or services?

Before amendment via GST Notification By CBEC:

After amendment via GST Notification By CBEC:

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Temporary vs. Permanent Transfer of IPR: An Analysis of GST rates

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Article: Whether Transfer of IPR is Considered Supply of Service or Supply of Goods Under the GST Regime?

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GST Liability on Intellectual Property Right (IPR) Related Services

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