M/s. Hyundai Motor India Ltd. Versus Commissioner of GST & Central Excise Chennai Outer Commissionerate
Service Tax
2018 (12) TMI 866 – CESTAT CHENNAI – 2019 (28) G. S. T. L. 288 (Tri. – Chennai)
CESTAT CHENNAI – AT
Dated:- 17-9-2018
Appeal No. ST/576/2011 – Final Order No. 42461/2018
Service Tax
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 div
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e” and under “fixed assets” in the annual report of Mobis India Ltd. Based on the valuation indicated in the accounts of Mobis India Ltd., department was of the view that the amount of Rs. 425.25 crores received as consideration for the transfer of the business included transfer of goodwill also. Thus goodwill was all along part of the consideration for sale of spare parts division of appellant to Mobis India Ltd. Goodwill is intangible property and classified as intellectual property and the transfer of the same would fall within section 65(105)(zzr) of the Finance Act, 1994. Further, the same has been clarified by the Board vide Circular No.80/10/2004-ST dated 17.9.2004. Even though the value of goodwill were shown as Rs. 80.29 crores by Mobis India Ltd. in their balance sheet, the notional value of goodwill was fixed at 8.5% of the total sale consideration (Rs.425 crores) on the basis of the agreement dated 30.4.2007 and this worked out to be Rs. 33.31 crores. Thus, according to dep
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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 intellectual property right, lies from well defined and is recognized by law. In Ramnik Vallabhdas Madhavani Vs. Taraben Pravinlal Madhvani reported in (2004) 1 SCC 497, it was observed by the Hon'ble Supreme Court that 'the term goodwill signifies the value of the business in the hands of a successor, so far as increased by the continuity of the undertaking being preserved in the shape of the right to use the old name and otherwise. It is
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llectual property law in force in India. He drew our attention to the decision of Commissioner of Income Tax Vs. Hindustan Coca Cola Beverages Pvt. Ltd. – 2011-TIOL-33-HC-DEL-IT and submitted that the adjudicating authority has erroneously relied upon the decision to hold that the transfer of goodwill amounts to transfer of intellectual property right. The Hon'ble High Court of Delhi in the said case was analyzing the issue with regard to depreciation of goodwill. Thus, the goodwill in the nature of intangible asset was not the question in the said case and whether such intangible asset is entitled for depreciation was the issue that is answered by the Hon'ble High Court. Hence the said case law is not at all applicable to the facts of the present case. He relied upon the case of Commissioner of Income Tax Vs. Associated Electronics and Electrical Industries (Bangalore) Pvt. Ltd. – [2016] 6 ITR-OL 471 (Kar.) to argue that in the said case the Hon'ble High Court of Karnataka was dealing
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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 Finance Act, 1994. The Tribunal in the said decision has also considered the application of the Board Circular dated 17.9.2004. He therefore argued that the levy of service tax alleging transfer of goodwill cannot sustain and requires to be set aside.
2.2 The second argument put forward by the ld. counsel was that the appellant has already paid service tax in respect of consideration received as per the separate trademark licensing agreement executed on 30.4.2007 as per which Mobis India Ltd. has to pay 8.5% of their annual domestic sales to the appellant as fee for trademark license. The dispute in the present case is not with regard to the amount received by the appellant as per this agreement dated 30.4.2007. The department alleges that as per the agreement dated 26.4.2007 which is a Business Transfer Agreement, the appellant hav
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rademark licensing agreement, Mobis India Ltd. has to pay fee for use of trademark @ 8.5% of their annual domestic sales. In the present case, the value of the goodwill cannot be arrived at this rate shown in the trademark licensing agreement for the reason that there is no domestic sales of goodwill. The goodwill if any has been entirely transferred along with the ongoing business to Mobis India Ltd. That therefore the valuation itself is fully based on assumptions and requires to be set aside.
3. The ld. AR Shri K. Veerabhadra Reddy 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 Rs. 80.29 crores in their balance sheet. This clearly indicates that there has been transfer of goodwill by the appella
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if any, of goodwill would fall within the definition of „transfer of intellectual property right service‟ as defined under section 65(55b) of Finance Act,1994. For better appreciation, the said provision is reproduced as below:-
'Intellectual Property Service' is defined in Section 65(55b) of the Finance Act, as under:-
'Intellectual property service' means
(a) transferring temporarily or
(b) permitting the use or enjoyment of any intellectual property right.
'Intellectual property right' is defined under section 65(55a) of the Finance Act, 1994 as “any right to intangible property namely, trademarks, designs patents or any other similar intangible property, under any law for the time being in force, but does not include copyright”.
5.1 From the definition of intellectual property right laid in Section 65(55a), it is clear only IPR which comes under any law in force would come within the ambit of the definition. Though goodwill may be in the nature of intangible
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1994. The Hon'ble Court as an obiter dicta had observed that goodwill being an intangible asset is like all other assets 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
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use Mobis India Ltd. indicated the value of goodwill to be 80.29% in their balance sheet, the department alleges that there is transfer of goodwill and such transfer amounts to transfer of IPR. Interestingly, the valuation of the transfer of IPR service is not arrived on the basis of this value reflected in the accounts of Mobis India Ltd. But the department has based the valuation on the fees stipulated for use of trademark which is to be paid on the basis of the annual domestic sales of Mobis India Ltd. We fail to understand 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. Thus, we find that such a valuation derived by the department for the goodwill is also without any logic or basis.
6. We thus hold that the demand cannot sustain. The impugned order is set aide and the appeal is allowed wi
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