Intellectual property rights/services under service tax
Definition and scope of service:
“Taxable Service” means any service provided or to be provided to any person, by the holder of intellectual property right, in relation to intellectual property service;
“Intellectual Property Right” means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright;
Under the present service tax law, the expression ‘intellectual property right’ has notbeen defined. It has to be understood as in normal trade parlance as per which intellectual property right includes the following:-
- Copyright – A document granting exclusive right to publish and sell literary, musical or artistic work.
- Patents – A document granting an inventor sole rights to an invention.
- Trademarks – A formally registered symbol identifying the manufacturer or distributor of a product.
- Designs – The act of working out the form of something (as by making a sketch, outline or plan)
- Any other similar right to an intangible property, viz., know-how, trade secrets, secret processes, titles, information, etc.
“Intellectual Property Service” means, —
(a) Transferring, temporarily or
(b) Permitting the use or enjoyment of, any intellectual property right.
As per section 66E(c) of the act, temporary transfer or permitting the use or enjoyment of any intellectual property right would be constitute as declared service.
Liability under reverse charge
Wherever the service provider is located outside the taxable territory but the service is being provided in taxable territory, in terms of place of provision of services rules,2012, the tax shell be payable by service receiver.
Place of provision of service rules, 2012
As per rule 3 of the place of provision of services rules, 2012, place of provision of ‘ intellectual property service’ shall be the place where the receiver of the service is located.
There is no condition regarding the law under which an intellectual right should be registered; temporary transfer of a patent registered outside India would also be covered under this entry. However, it will become taxable only if the place of provision of service of temporary transfer of intellectual property right is in taxable territory.
Notification no. 25/2012 dated 20/06/2012 provides exemption from levy of service tax on services provided in the course of temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, artistic works or cinematograph films.
Clarifications issued by the Board:
Intellectual property services (other than copyrights) –
(1) Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase ‘law for the time being in force’ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by the Indian law) would not be covered under taxable services.
(2) A permanent transfer of intellectual property right does not amount to rendering of service. On such transfer, the person selling these rights no longer remains a ‘holder of intellectual property right’ so as to come under the purview of taxable service. Thus, there would not be any service tax on permanent transfer of IPRs.
(3) In case a transfer or use of an IPR attracts cess under Section 3 of the Research and Development Cess Act, 1986, the cess amount so paid would be deductible from the total service tax payable.