permanent transfer of intellectual property rights, Goods and Services Tax - GST

[SANJAY JAIN]

What is the HSN code for permanent transfer of intellectual property rights?

thanks in advance

Posts / Replies

[KASTURI SETHI]

HSN/SAC : 9973

[Ganeshan Kalyani]

HSN 9973:

(ii) Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right. - 18% GST applicable.

[SANJAY JAIN]

Thanks for the reply. As per schedule 2 of CGST ACT, (c) temporary transfer or permitting the use or enjoyment of any intellectual property right is service. In my view the permanent transfer of IPR is good. Since HSN 9973 is for service, can we use the same HSN code for the transfer of goods (i.e. permanent transfer of IPR)

[Padmanathan Kollengode]

Pls find entry No 452P of Notification No 1/2017-CT (R) prescribing tax rate for goods:-

452P

Any Chapter

Permanent transfer of Intellectual Property (IP) right

I also agree that it should be treated as supply of goods as Notifications cannot override Act and Schedule II is an integral part of the CGST Act.

[SANJAY JAIN]

In entry number 452P, the rate has been given but no HSN is prescribed.

[KASTURI SETHI]

Sh.Sanjay Jain Ji,

Please read word for word to arrive at correct and concrete decision on this issue.

(i) For 'Intellectual Property Rights as goods, there is no specific chapter heading/tariff heading of Customs Tariff Act (as made applicable to GST Acts). That is why it has been mentioned as “any chapter" in Notification No. 43/2017-I.T. (Rate), dated 14-11-2017. The word, 'any' means 'all' or 'every' or 'some' or 'one'

(ii) Which products are to be protected under Patents Act or Copyright Act or Trade Marks Act, or Designs Act etc. by you ? Accordingly, move ahead for Chapter/Heading/Sub-heading for classification. It is open sea for this purpose.

(iii) The term, 'Intellectual Property Rights' has not been defined as goods under CGST Act. As per legal dictionary, 'Intellectual Property' refers to a category of intangible rights protecting commercially valuable products of human intellect comprising primarily trade mark, copyright and patent right, as also trade secret rights, publicity rights, moral rights and rights against unfair competition (vide).

It is worthwhile to peruse the definition of goods under CGST Act.

Definition of “goods”

Section 2(52) of the CGST Act, “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

What is property ?

Legal meaning of 'property'

As per legal dictionary, 'property' in legal sense means an aggregate of rights which are guaranteed and protected by law. It extends to every species of valuable right and interest, more particularly, ownership and exclusive right to a thing, the right to dispose of the thing in every legal way, to possess it, to use it, and to exclude everyone else from interfering with it. The dominion or indefinite or indefinite of right of use or disposition which one may lawfully exercise over particular things or subjects is called property. The exclusive right of possessing, enjoying and disposing of a thing is property in legal parameters. Therefore, the word, 'property' connotes everything which is subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make up wealth or estate or status. Property, therefore, within the constitunal protection denotes a group of rights inhering citizen's relation to physical thing, as right to possess, use and dispose of it in accordance with law.

Property means also "any possession"

I hope you will be able to classify your product correctly.

Disclaimer : These are my personal views for education purpose only and not meant for any court proceedings.

[Padmanathan Kollengode]

Ld Kasturi Sir,

My apologies that I could not follow your previous post as to the exact reason why 'intellectual property right' is not 'goods' under GST? if it because it is not "property"? or is it because it is "intangible" in nature? or is it because the Rate of Goods Notification says "any chapter"?

Pls clarify. Regards.

[Padmanathan Kollengode]

Dear Querist,

I still believe your specific situation is covered under under "goods" and Entry 452P mentioned in the earlier post. (unless and until I get a convincing view from Ld. Kasturi Ji that it is 'service', in which case I am more than happy to stand corrected).

Now coming to your original query of the HSN code to be mentioned, Pls note that permanent transfer of IPR is not the only entry where specific HSN/chapter heading is not specified. Other entries include Entry 227A actionable claim, Entry 453, (earlier entry 242 and entry 228 - lottery etc).

In the context of lottery tickets, the following clarification in Circular 06/06/2017-GST dated 27-08-2017 requires to be noted:

Subject: – Issue related to classification and GST rate on lottery tickets – regarding

Supply of lottery has been treated as supply of goods under the Central Goods and Services Tax (CGST) Act, 2017.

2. Accordingly, based on the recommendation of the GST Council, the GST rate for supply
of lottery has been notified under relevant GST rate notification relating to CGST/IGST/UTGST/SGST. However, entries in the respective notifications mention
classification for lottery as “-”.

3. In this connection, references have been received, inter-alia, stating that due to discrepancy in code allotted, i.e., lottery is defined as goods but code allotted for lottery is under services, the assessees are not able to upload return or deposit tax in time.

4. The matter has been examined. It should be noted that the process of filing return is
linked with rate of tax specified for supply. Further, there is complete clarity about rate of tax on lotteries. As mentioned above, in GST, lottery is goods and the classification indicated in relevant notification for lottery is “-”, which means any chapter.

5. That being so, it is clarified that the classification for lottery in respective CGST, IGST,
UTGST and SGST notifications shall be ‘Any Chapter’ of the First Schedule to the Custom
Tariff Act, 1975 (51 of 1975) and tax on lottery should be paid accordingly at prescribed rates, 12% or 28%, as the case may be.

In my humble opinion, though the circular is not related to permanent transfer of IPR but sale of lottery, one can take cue from para 5 above for the scenario mentioned by you in the query.

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

The querist's query is too brief to answer comprehensively. The querist is requested to detail full facts and circumstances of the issue involved so as to enable me to reply comprehensively. There are so many factors in the issue raised by the querist.. I do not intend to beat about the bush. So the disclosure of full facts are an absolutely must for comprehensive reply.

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

In the absence of full facts, my reply is general and not specific i.e. not restricted to services only. It includes services and goods both. How to take a cue from my reply and how to segregate both goods and services for proper classification depends upon the intellect of the querist.

[Padmanathan Kollengode]

Ld Kasturi Ji,

From your Post 10, you agree that IPR can be both goods or service, isnt it?

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

(i) Yes. Intellectual Property Rights are goods and Services both.

(ii) You will be convinced after reading the judgement of Hon'ble Supreme Court in the case of Vikas Sales Vs. Commissioner of Commercial Taxes - 1996 (5) TMI 363 - SUPREME COURT.

(iii) In this context, also peruse the following case laws :-

1. Commercial of Sales Tax Vs. Duke & Sons Pvt. Ltd. - 1998 (9) TMI 633 - BOMBAY HIGH COURT

2. SPS Jayam and Company Vs. Registrar , Tamil Nadu Taxation Special Tribunal & Others - 2004 (4) TMI 539 - MADRAS HIGH COURT

[SANJAY JAIN]

IPR has been taken for software development. The owner of IPR permanently transfers the right of such IPR. The rate of GST is 18% however what is the HSN code to be used for the permanent transfer of IPR

[KASTURI SETHI]

In my view, software as goods is classifiable under Chapter/Heading/Sub-heading No. 8523 80 20 (Information Technology Software).

Licensing services for right to use computer software falls under HSN/SAC 997331.

[KASTURI SETHI]

Also go through the judgement of Supreme Court :-

TATA CONSULTANCY SERVICES Versus STATE OF ANDHRA PRADESH - 2004 (11) TMI 11 - SUPREME COURT