TMI Blog2022 (9) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly, therefore, outside the purview of article 366 (29A) (d) of the Constitution that defines tax on the sale or purchase of the goods. Service tax would, therefore, be chargeable. However, in the case of the Trademark License Agreement an exclusive license to use the trademark in any manner during the term of the agreement was granted. Such a license could not be granted to any other person during the period of the agreement. This would clearly fall within the meaning of the phrase transfer of right to use the goods and would be covered by article 366 (29A) (d) of the Constitution. Service Tax would, therefore, not be payable. The Principal Commissioner, therefore, committed no illegality in holding that service tax could not be levied on the right to use component of the Trademark License Agreement - Appeal dismissed. - SERVICE TAX APPEAL NO. 53304 OF 2015 - FINAL ORDER NO. 50819/ 2022 - Dated:- 8-9-2022 - MR. DILIP GUPTA, PRESIDENT AND MR. P V SUBBA RAO, MEMBER (TECHNICAL) Shri Ravi Kapoor, Authorized Representative for the Department Shri Kumar Visalaksh, Shri Udit Jain and Ms. Surbhi Jain, Advocates for the Respondent ORDER The Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service tax; (ii) An agreement is required to be read in a manner that it reflects the true intension of the parties thereto as regards the consideration agreed to be paid in return for the activities carried out under the agreement; (iii) Service tax and VAT exclude each other and cannot be levied concomitantly on a transaction; (iv) Incorporeal property such as trademarks constitutes goods for the purpose of the levy of VAT; and (v) As for as the demand of Rs. 10,01,258/- for period April 2008 to September 2008 is concerned, thus it is beyond the limitation period of five years and hence, excludable. 5. In order to appreciate the submissions advanced by the learned authorized representative appearing for the Department and the learned counsel appearing for the respondent, it would be appropriate to refer to the relevant clauses of the aforesaid Trademark License Agreement dated August 27, 2008 between the respondent (referred to as the licensor in the Agreement) and Pantaloon Retail (India) Ltd. (referred to as the licensee in the Agreement). The relevant clauses are reproduced below: RECITALS: A. WHEREAS, the Licensor is the proprietor of the Trademar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to retain test, process and final inspection records on Products bearing the Trademarks for the duration of the time stipulated by the Applicable Law but at least for a period of five five(5) years. 5.4 The Licensee shall during the Term of the Agreement maintain records of all Products manufactured, promoted, distributed or sold under the Trademarks. 5.5 The Licensee shall be entitled to use the Trademarks on an exclusive basis, in accordance with the terms of this Agreement and shall not allege and/or claim any rights, title, interest in or to the said Trademarks by virtue of the use of the Trademarks by the Licensee. 6. A similar Trademark License Agreement was executed between the respondent and Future Value Retail Limited for brand Srishti . 7. It would also be appropriate to note that a Retail License Agreement was also executed on October 01, 2007 between the respondent and Pantaloon for brand Dreamline . Under this Agreement, a non-exclusive, non-transferable license to use the Trademark was granted by the respondent to Pantaloon. Clause-V of this Agreement relates to Quality and Control. It stipulates that Pantaloon agrees that the respondent has the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been transferred in absolute and unrestricted terms and the legal right of possession and effective control remained with the respondent. Therefore, there was no deemed sale and in support of his contention learned authorized representative placed reliance upon the decision of the Tribunal in Eicher Good Earth Ltd. vs Commissioner of Service Tax, New Delhi [ 2012 (28) S.T.R. 279 (Tri.-Del.) ]. 10. Learned counsel appearing for the respondent, however, supported the impugned order and submitted that on a careful analysis of the terms of the Trademark License Agreement and the decision of the Supreme Court in BSNL, it is clear that the Agreement seeks to transfer the right to use in terms of paragraph 91(d) of the said judgment. Learned counsel submitted that the transfer of right to use of Trademark on an exclusive basis would qualify it as deemed sale under article 366(29A) of the Constitution thereby, attracting levy of VAT and would consequently be outside the purview of service tax. 11. To appreciate, whether service tax can be levied on the transaction, it would be necessary to analyse the relevant statutory provisions as they existed prior to 01.07.2012 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, which to the extent of 35 per cent. The respondent contends that on the right to use component value, it has regularly paid VAT, as it would amount to a deemed sale under article 366 (29A) of the Constitution and, therefore, no service tax is leviable. 19. In this connection, it would be pertinent to refer to Entry 54 of List II of the Seventh Schedule to the Constitution. It empowers State to levy tax on sales and purchase of goods. The relevant Entry is reproduced below: 54 . Taxes on the sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I 20. The forty-sixth amendment to the Constitution extended the meaning of sale or purchase of goods by giving an inclusive definition to the phrase tax on the sale or purchase of goods under article 366(29A) of the Constitution. The same is reproduced below: 366(29A) tax on the sale or purchase of goods includes- (a) a tax on transfer, otherwise that in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as follows: 62. On going through the submissions and the observations of the Hon ble Supreme Court, it is clear that in the case of Retail License Agreements what is granted by the noticee is merely a license to use the goods. In such a case the noticee is not debarred from permitting the same license to others during the license period. Therefore, such agreements are outside the purview of under Clause (d) of Article 366 (29-A) and are chargeable to service tax under List I of the said Seventh Schedule. However, in the case of Trademark License Agreements, the language of the agreements provides the license in an exclusive manner to a customer and thus it bars the noticee from transferring the same right to some other person during the period of agreement. As has been clarified by the Hon ble Supreme Court the latter type of agreement would clearly fall within the phrase of transfer of right to use the goods . Thus, such a transfer agreement will definitely covered the said Clause (d) of Article 366 (29-A) of the List 2. xxxx xxxx xxxx. Therefore, in my view the noticee is correct in such cases of agreements service tax would not be chargeable . Royalty is the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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