The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that no service tax is applicable on permanent transfer of Intellectual Property Rights (IPR).

During the audits conducted for the appellants- SKOL Breweries Ltd. for the period April 2005 to February 2010, one of the items under scrutiny was with regard to Assignment of Trademark by   Foster’s Australia Ltd. to the appellant for which the Deed of Assignment was executed and payment was made by the Appellant to Foster.

The Appellant filed a reply to the audit objections clarifying that this was a case of permanent transfer of all rights, title and interest in the trademark/brand by Fosters to the appellant and the said transaction qualified as “permanent transfer‟ or “sale transaction‟ and therefore was not liable to service tax.

However, the department did not agree to the reply filed by the appellant and issued a show cause notice demanding US$ 27,10,000 along with the interest and penalty. The appellant filed a detailed reply to the show cause notice and submitted that it is a case of permanent transfer therefore does not qualify as rendering services.

In view of the submissions filed by the appellant, the learned Commissioner passed an  Order-in-Original confirming that the service tax proposed to be recovered in the show-cause notice along with interest and various penalties. It was held that the assignment of trademark and the IPR amounts to permanent transfer and no service tax is applicable on permanent transfer of IP Rights by Foster’s to the appellant because, when a permanent transfer occurs, the seller of Intellectual Property is no longer the holder of any intangible property rights himself. Therefore, he does not fall under the purview of taxable service.