2026-VIL-1437-CESTAT-ALH-ST
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SERVICE TAX CESTAT Cases

Service Tax – Scope of Intellectual Property Rights Service - Royalty for pre-installation of Operating Software - Appellant procured license for pre-installation of operating software from Microsoft Corporation against payment of royalty under Microsoft Desktop Operating System License Agreement for OEM Customers - Department issued Show Cause Notice proposing demand of service tax alleging that activity of affixing Microsoft Windows could be treated as trademarks falling under IPR Service - Whether royalty paid for license to pre-install Microsoft Operating System in computers manufactured by appellant constitutes Intellectual Property Rights Service taxable under Section 65(55b) of Finance Act, 1994 - HELD - The definition of Intellectual Property Rights under Section 65(55a) of Finance Act, 1994 includes trademarks, designs, patents or any other similar intangible property under any law in force in India but specifically excludes copyright. The transaction in the present case involved license granted by Microsoft to pre-install copyrighted software which is software owned by Microsoft and the appellant was not granted copyright but only a license to use the software. Microsoft retained the copyright and merely transferred temporary enjoyment of the copyrighted software to appellant for pre-installation in computers and subsequent sub-licensing to buyers - Since copyright is specifically excluded from the definition of IPR under Section 65(55a), transfer or license to use copyright does not constitute IPR Service. The Show Cause Notice failed to identify or specify which intellectual property right falling within Section 65(55a) was involved and did not establish how the alleged intangible property was protected, registered or recognized under Indian law - The authority cannot demand service tax under IPR Service category without specifically identifying which intellectual property falling within Section 65(55a) is involved. From 16.05.2008, Information Technology Software Services became taxable for the first time with introduction of new provision covering right to use information technology software. Since old entry relating to IPR was not modified and new entry for ITSS was created separately covering this scope, the transaction was not covered under earlier entry prior to 16.05.2008 - The demand proposed for period prior to 16.05.2008 is set aside – The appeal is allowed - Service Tax - Extended Period of Limitation - Whether demand for service tax can be raised after expiry of normal period of limitation of one year when department was fully aware of transaction during normal period and when suppression cannot be established - HELD - When department is fully aware of relevant transactions and details during the normal period of limitation as evidenced by audit, correspondence and correspondence extending beyond the normal limitation period, it is not logical or sustainable to allege that information was suppressed by the appellant with intent to evade. The burden lies on department to prove that appellant had withheld information with intent to evade tax. When appellant is disputing liability in bona fide manner and disclosing all relevant information to department, mere fact that appellant did not take registration, file returns or pay service tax on matter that was in genuine dispute cannot constitute suppression. The extended period of limitation can only be invoked when there is proof of deliberate concealment or suppression of facts with intent to evade tax and not merely because assessment action was not taken during normal period - The demand confirmed by invoking extended period of limitation is set aside as it is beyond normal period of limitation and elements of suppression with intent to evade have not been established - Service Tax - Revenue Neutral Situation - Availability of CENVAT Credit - HELD - When service received is used in manufacture of dutiable goods and CENVAT Credit of the service tax paid would be available for discharge of Central Excise duty on such dutiable goods, the entire issue assumes a revenue neutral character. In such revenue neutral situations the intention to evade tax may be considered as absent and accordingly demand for extended period of limitation cannot be sustained as element of suppression with intent to evade is absent - Revenue cannot claim suppression with intent to evade when the financial position of both revenue and assessee would remain the same due to availment of CENVAT Credit. The circumstance of revenue neutral situation where CENVAT Credit was available forms an important consideration in determining whether suppression with intent to evade tax was present - The demand based on extended period of limitation in a revenue neutral situation is set aside.
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