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2016 (1) TMI 442 - CESTAT MUMBAI

2016 (1) TMI 442 - CESTAT MUMBAI - 2016 (42) S.T.R. 340 (Tri. - Mumbai) - Levy of service tax on the royalty under reverse charge mechanism - Intellectual Property Service - scope of the work "namely" - The appellant demonstrates and imparts training to the customers who use their software for their own use under specific lock code system. The master key of the locking code system is entirely in the possession of M/s.Fluent Inc.; they are the owners of the said mater key. - Held that:- the appel .....

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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 - Decided in favor assessee. - APPEAL No.ST/60/12 - ORDER NO: A/39 .....

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eferred as FI) under an agreement between M/s.Fluent Inc, USA and the appellant, i.e. M/s.Fluent India Pvt. Ltd. The royalty was paid for distribution, marketing and support of software known as FI software (referred to as products). As per the impugned order, the appellant developed software and extended the service of trained personnel for testing, documentation and use of the software under the instructions provided by M/s. Fluent Inc. Each software having a distinct customer, M/s.Fluent Inc. .....

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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. U .....

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he guidance and instructions provided by FI. FI and FIndia have entered into an Agreement on July 26, 2003, for distribution, marketing and support of a set of computer programs known as FI software (hereinafter referred to as the Products ) within the limits permissible for FIndia as per the Indian rules and regulations 5. SOFTWARE LICENSE 5.1FI grants, without prejudice, to FIndia a non-exclusive, non-transferable license to use the software Products provided hereunder and related documentatio .....

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ucts offered on the license to the customers will remain in the operation till the license period is over even after 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 .....

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that are affixed, at the time of FIs shipment, to any FI products or third party software products provided by FI. No non-FI products sold by FIndia may bear FI markings or colors. 7.4 FIndia shall be responsible for the security of the Products and for the assurance that those sublicensed comply with all provisions of the license. Unless otherwise permitted by this agreement, any distribution, sale, transfer or other disposition by FIndia of the products, including any and all physical embodi .....

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roduct covered in this Agreement. The master copy will be in a form suitable for use by FIndia to generate copies for sale and demonstration of the Product. SCHEDULE B Royalty and payment thereof FINDIA shall pay FI for Products covered by this Agreement (see Schedule A) in the form of royalty, at the rate of 40% of 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 .....

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lowed to sell, transfer, disclose any software product or copies thereto others. The Commissioner has read into the language of the Agreement to conclude that the appellant have provided service under the intellectual property service . Therefore, it is necessary to see the statutory provisions relating to intellectual property services. The relevant provisions are Section 65 (105) (zzr), Section 65 (55a) & Section 65 (55b) are read as under: 65 (105) (zzr) -Taxable service means service pro .....

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y right; Undisputedly, in terms of Section 66A, when a service is provided from outside India and received by a person in India, the recipient shall treated as the service provider and be liable to pay service tax. The question which arises is whether a taxable service has been provided by the appellant which the Commissioner holds to be intellectual property right service. 5. The learned Advocate contended that with effect from 16/05/2008, their service is covered under Information Technology S .....

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oner 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 appellant s activity is development of software marketing, distribution and sale of the software. The reasoning is incomprehensible to us. Anyway this issue does not require attention from our side because copy right, in any case, is excluded fro .....

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der Section 65 (55a) covers trademarks, designs, patents or any other similar intangible property under any law. The word, namely in the definition qualifies the above rights to show that it restricts the scope to specific intellectual property rights that are covered by specific statutes/laws. 5.2 The learned Advocate has referred to Black s Law Dictionary of English as well as Cambridge International Dictionary of English to show that the word namely refers to specific matters. In our view it .....

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