TMI Blog2018 (12) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... how the department can base this agreement to arrive at the value of goodwill when the fee for use of trademark agreed between parties to be 8.5% of annual domestic sale made by Mobis India Ltd. There is no domestic sale of good will annually - such a valuation derived by the department for the goodwill is also without any logic or basis. Demand do not sustain - appeal allowed - decided in favor of appellant. - Appeal No. ST/576/2011 - Final Order No. 42461/2018 - Dated:- 17-9-2018 - Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri S. Muthuvenkataraman, Advocate for the Appellant Shri K. Veerabhadra Reddy, ADC (AR) for the Respondent ORDER Per Bench The appellants are engaged in manufacture of cars and parts thereof and are registered with the Central Excise Department. They also had an independent spares parts division with separate central excise registration. In addition to manufacture of spare parts, this division used to procure parts from vendors also. The items manufactured and procured were sold by the spare parts division to their dealers. The appellants sold the spare parts business divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter due process of law, the adjudicating authority confirmed the demand, along with interest and also imposed penalties. Hence this appeal. 2. The ld. counsel Shri S. Muthuvenkataraman assisted by Ms. Cynduja Crishnan and Shri S. Ramamurthy appeared and argued the matter. He submitted that the demand has been raised alleging ₹ 33.31 crores is the value of goodwill transferred temporarily to Mobis India Ltd. The foremost argument of the counsel is that goodwill is not an intellectual property right and even if it is transferred would not attract the levy of service tax. For this, he adverted to the definition of Intellectual Property Right defined in Section 65(55a) of the Finance Act, 1994 and argued that to attract levy of service tax under Section 66(55b) intellectual property right should be recognized under the intellectual property law in force in India. The transfer of such intellectual property right such as trademark, designs, patents etc. would attract the levy of service tax. He submitted that goodwill does not fall under the definition of Section 65(55a). Goodwill is an asset of fluid nature dependent on a variety of extraneous factors. In contrast to this int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble High Court of Karnataka was dealing with an issue of capital gains on transfer of trademark wherein the High Court has observed that trademark and goodwill are two distinct separate concepts. It was stated therein that goodwill has no existence except in connection with the continuing business. Goodwill not being an intellectual property right the demand raised cannot sustain. 2.1 The department has relied upon the Circular dated 17.9.2004 wherein it is clarified by the Board that goodwill also would be in the nature of intellectual property right. However, the Courts and Tribunals in various cases have analyzed the said circular and held that only when the intellectual property right is recognized under the Indian law would the same be subject to levy of service tax under the category of Intellectual Property Right Service , as per Section 65(55b). The decision of the Tribunal in the case of Alstom T D Ltd. vide Final Order No. 42942 to 42946/2017 dated 16.11.2017 was relied upon by the ld. counsel to argue that only when the intellectual property right is recognized under the law in India, would the transfer of such right be subjected to levy of service tax under the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported the findings in the impugned order. He submitted that a separate agreement was entered by the appellant with Mobis India Ltd. for transfer of trademark licence. The value of goodwill was not shown separately in the Business Transfer Agreement. However, Mobis India Ltd. reflected the value of the goodwill received by them to be ₹ 80.29 crores in their balance sheet. This clearly indicates that there has been transfer of goodwill by the appellant. In the case of Hindustan Coca Cola Beverages Pvt. Ltd. (supra), the Hon ble Delhi High Court had considered the issue with respect to whether goodwill is an intangible property or not and held that it is similar to technical know-how, patents, copyright, trademark etc. The adjudicating authority has relied upon the Board s circular dated 17.9.2004 which has clarified that intellectual property emerges from an application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. That therefore the demand raised for the transfer of goodwill is legal and proper. The appellants have not reflected the value of the goodwill in the Business Transfer Agreement. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets patents, copyright, trademark etc. Section 65(55b) lays down that only the transfer of intellectual property which is recognized under the Indian law would be subject to levy of service tax. The Hon ble High Court of Karnataka in the case of Associated Electronics and Electrical Industries (Bangalore) Pvt. Ltd. (supra), has observed that trademark and goodwill are two distinct separate concepts. That goodwill of business has no existence except in connection with the continuing business . 5.2 The Tribunal in the case of Alstom T D (supra) had occasion to analyze a similar issue wherein a trademark which was registered / recognized outside India was subject to levy of service tax under IPR service. The Tribunal relied upon various decisions and held that the transfer of such trademark which has not been recognized or registered within India will not fall within the ambit of Intellectual Property Right Service. From the above discussion, we are of the considered opinion that transfer of goodwill will not fall within the definition of IPR service as stated in Section 65(55b) of Finance Act, 1994. 5.3 Coming to the valuation and quantification of demand, the ld. counsel has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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