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2016 (1) TMI 442

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..... Specific clauses of the Agreement clearly show that the appellant cannot disclose transfer or otherwise make available any software products or copies thereof to others. The appellant is only authorised to retain the trade mark of Fluent Inc which are provided by the latter. Fluent Inc. products sold by the appellant can bear the markings of Fluent Inc. The appellant is merely distributing, marketing and supporting set of computer programme known as FI software. There is absolutely no indication of any transfer of intellectual property right on a plain reading of the Agreement. Neither do we find any hidden or deeper meaning in the Agreement which would indicate transfer of intellectual property right. Demand of service tax is set aside .....

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..... the activity undertaken is not covered under Copy Right Act, 1957 but falls under the category of Intellectual Property Service as defined under Sections 65 (55a) and Section 65 (55b) read with Section 65 (105) (zzr). The appellant was held liable to pay service tax on the royalty amount under the reverse charge mechanism prescribed under Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994 read with Section 66A of the Finance Act. Penalties were imposed under Section 78 as well as under Section 77. 3. Heard both the sides. 4. To appreciate the context of the arrangements between Fluent Inc. USA and the appellant, we straightaway refer to the relevant clauses of the Agreement as below: 1. FIndia, a Company registered in India, is a .....

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..... the expiry/termination of this agreement. 5.2FI hereby grants to FIndia a non-exclusive, non-transferable unsupported license to grant sublicense to third parties to use the software Products. All sublicense require a fully executed Software License Agreement, attached as Schedule C. This Software License Agreement, or one modeled upon it which is translated or modified to conform to local laws or customs, must be executed for each sublicense, and each such Sublicensee must be bound to said agreement. Any modifications to this Software License Agreement must be agreed to in writing by FI. 5.3Any or all computer software and other products pertaining to the products covered under this agreement developed by FIndia shall be the excl .....

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..... f the FINDIA software revenues. FI and FIndia may modify the rate of Royalty from time to time through written intimation. We find that the language of the clauses above is very clear and hardly needs any interpretation. However, we would still emphasise the fact that the appellant is only a subsidiary of M/s.Fluent Inc. The Agreement is essentially for distribution, marketing and support of computer programme known as FI software. No title or ownership of the software product or any portion there of is transferred to the appellant. The appellant is granted a non-exclusive, non-transferable licence to use the software products solely for their own use. The appellant is not allowed to sell, transfer, disclose any software product o .....

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..... ntroduced from 16/05/2008 and they have paid tax thereon from that date. Notwithstanding this, we find the Commissioner still holds that the service tax is payable for the entire period post 18/04/2006 under the category of intellectual property service . He also rejects the contention of the appellant that their services is covered under copyright which is excluded from the scope of Section 65 (55a) that defines intellectual property right . The reasoning given by the Commissioner for holding that the service is not covered under copyright service is very vague. He simply brushes aside the contentions of the appellant by stating that meaning of copyright covers literary, dramatic or musical work or computer programme but the appellan .....

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..... e much intelligence to appreciate that the intellectual property referred to in the section has to be an intellectual property under a law. Even otherwise, it is well known that intellectual property rights are defined under specific Acts such as The Trade Mark Act, The Geographical Indications Act, etc. Revenue cannot simply allege that the activity of the appellant is an intellectual property service without specifying the precise intellectual property right. This is the basic flaw in the entire proceedings and shows complete lack of appreciation of the statutory provisions. Therefore, the order deserves to be set aside on this ground alone. 6. However, as the Commissioner has referred to the clauses of the Agreement and vaguely descri .....

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