2018 (12) TMI 866 – CESTAT CHENNAI – TMI – Transfer of intellectual property right service – transfer of Goodwill – scope of definition under section 65(55b) of Finance Act,1994 – Held that:- The Tribunal in the case of Alstom T&D [2018 (2) TMI 148 – CESTAT CHENNAI] 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.
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The transfer of goodwill will not fall within the definition of IPR service as stated in Section 65(55b) of Finance Act, 1994.
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Valuation and quantification of demand – The demand raised is based on the Transfer of Business Agreement (425.25 crores) from which the value for transfer of goodwill is derived by the department on the basis of t
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ion 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 division to Mobis India Ltd. under a Business Transfer Agreement dated 26.4.2007 as a going concern with effect from 1.5.2007. The consideration for the said transfer was agreed at ₹ 425.25 crores. A separate Trade Mark Licensing Agreement was executed on 30.4.2007 as per which Mobis India Ltd. would pay 8.5% of their annual domestic sales to the appellant as fee for trademark license granted to them for a period of 10 years commencing from 1.5.2007 till 30.4.2007. During audit of Mobis India Ltd. conducted by the internal audit wing of LTU, Chennai, it was noticed that in their auditor s report for 2007 – 08, fixed assets, current assets and current liabilities had been mentioned as acquired at book values and that the company had also paid consideration t
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dia 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 ₹ 33.31 crores. Thus, according to department, out of ₹ 425 cores paid as consideration for sale of ongoing business to Mobis India Ltd., ₹ 33.31 crores appears to be value of goodwill transferred to Mobis India Ltd. Show cause notice was issued proposing to demand service tax on the value of ₹ 33.31 crores to the tune of ₹ 3,66,47,575/- along with interest and also for imposing penalties. After 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
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rved 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 something more than a mere chance or probability of old customers maintaining their connection, though this is a material part of the practical fruits . Thus, goodwill is a whole advantage belonging to the firm, its reputation and connected materials thereof. There exist no law in India which either recognizes or protects goodwill as an intellectual property right in India. The department has extended the meaning of any other similar intangible property in section 65(55b) of Finance Act, 1994 to include goodwill also by erroneous interpretation. On application of the principle of ejusdem generis , the only interpretation that can be arrived from the words any other similar intangible property is that other intangible properties
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ts 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 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 t
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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 having received ₹ 425 crores in total such amount would also include the value of goodwill. Though nothing specifically has been stated in the Business Transfer Agreement with regard to transfer of goodwill, Mobis India Ltd. had reflected in their balance sheet an amount of ₹ 80.29 crores being the value of goodwill. Based upon this accounting pattern adopted by Mobis India Ltd., the demand has been raised upon the appellant alleging that there is transfer of goodwill which is transfer of intellectual property right under Section 65(55b). But however, the value of goodwill has been arrived by the department not on the basis of the value reflected in the accounts of Mobis India Ltd. but basing the same on the trademark li
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odwill 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. Th
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ude 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 right, there is no law which recognizes it as an intellectual property right. In fact, goodwill is attached to an ongoing business whereas IPR is not always so. The right over IPR may be obtained by an individual also. Goodwill of a company may include the value of IPR held by him but not the vice versa. According to the department, the words any other similar intangible property would include goodwill also. We fail to agree with this argument. The main decision relied by the ld. AR to support the findings in the impugned order is the decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (supra). On perusal of the said judgment, we find that the issue under consideration before the Hon ble High Court was with regard to the depreci
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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 pointed out that department has based upon the separate agreement for trademark license entered by them with Mobis India Ltd. dated 30.4.2007, to arrive at the value of the goodwill that has been alleged to be transferred. The department does not have a case that appellant has not paid service tax on the amount received by this separate agreement for transfer of trademark dated 30.4.2007. The demand raised is based on the Transfer of B
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