2023 (4) TMI 439 - AT - Service Tax

Classification of services - Scientific or technical consultancy Service - intellectual property right service - whether the patent and other technical know-how transferred to M/s SSIPL under sales purchase agreement as a going concern would fall within the ambit of taxable service of Scientific or technical consultancy Service and intellectual property right service as defined under Section 65 (92) and 65 (55b) of Finance Act 1994 and liable for payment of service tax? HELD THAT - The impugned show cause notice alleged that transfer activity of its Polymer Division to M/s SSIPL is covered under the service category of Intellectual Property Service and transfer activity of technical know-how provided by the unit during transfer of its Polymer Division to M/s SSIPL is covered under the service category of Scientific Technical Consultancy Service ; which are taxable service with effect from 10.09.2004 and 16.07.2001 respectively. However from the definition of scientific or technical consultancy service it is found that there should be an advice consultancy or scientific or technical assistant given by person or an institution to another person. In the present matter it has not been brought out by the revenue as to what advice consultancy or scientific or technical assistant has been given by the seller to the buyer. Providing of intellectual property service - HELD THAT - From the definition of said service it is clear that there is rendering of service only if there is temporary transfer of some intellectual property or permitting its use. In the present matter from the facts of the case there does not seem to be any temporary transfer of intellectual property. In the present case whole Polymer division itself was sold by the Appellant to M/s SSIPL as going concern. The disputed transaction of appellant will not fall within the definition of Scientific and Technical Consultancy Service and Intellectual Property Service as stated in Section 65(92) and Section 65(55b) of Finance Act 1994. The slump sale has been one of the widely used ways of business acquisition. The concept of Slump sale was incorporated in the Income Tax Act 1961 by the Finance Act 1999 when Section 2(42C) was inserted defining the term slump sale - Hence in the present matter all such transfer including the transfer of technical know-how and patent etc. are in pursuance to the slump sale and not by way providing the service. Therefore in our view demand of service tax not sustainable on such type of transactions. The impugned order is set aside - Appeal allowed.

Summary

Issues involved:
The main issue in this case is whether the transfer of patent and technical know-how under a sales and purchase agreement as a going concern would be considered taxable under "Scientific or technical consultancy Service" and "intellectual property right service."

Details of the Judgment:

Issue 1: Transfer of patent and technical know-how

The appellant sold its Polymer Division to another company, and a show cause notice was issued demanding service tax on the transfer of patent and technical know-how. The appellant argued that the transfer was a permanent one and not subject to service tax. The appellant contended that the transfer of patent and technical know-how was in the nature of a sale and not a service. The circular stating that permanent transfer of intellectual property rights does not attract service tax was cited. The appellant also mentioned that the facts of the sale were known to the excise authorities during audits. The appellant disputed the service tax liability and argued that the value received should be treated as a cum-duty value.

Issue 2: Interpretation of relevant provisions

The definition of "scientific or technical consultancy service" and "intellectual property service" under the Finance Act, 1994 was analyzed. The show cause notice alleged that the transfer of the Polymer Division and technical know-how fell under taxable services. However, it was noted that there was no evidence of advice, consultancy, or technical assistance provided by the seller to the buyer. It was also observed that for intellectual property service, there should be a temporary transfer or permission for use, which was not evident in this case. The judgment concluded that the transaction did not fall within the definitions of the mentioned services.

Conclusion

The tribunal set aside the impugned order and allowed the appeal, stating that the transfer of patent and technical know-how as part of a slump sale did not attract service tax. The concept of slump sale, where undertakings are transferred for a lump sum consideration without individual asset valuation, was highlighted. The judgment emphasized that the transfer was in pursuance of a slump sale and not a service provision, making the demand for service tax unsustainable.

(Separate Judgment by Judges: Not Applicable)