THE ICFAI UNIVERSITY , DEHRADUN

ASSIGNMENT OF
LAW OF TAXATION

Student’s Name: ABHINAV SINGH RAUTELA

Enrolment No: 19FLICDDD02240

Batch Name & year : BA.LLB 4TH YEAR

PROJECT TITLE : TAXABILITY OF INTELLECTUAL PROPERTY

RIGHTS UNDER INDIRECT TAXES ESPECIALLY GST

Submitted By : ABHINAV SINGH RAUTELA

Submitted To : Mrs. STUTI TIWARI

INTRODUCTION

Regarding its transfer from its owner, the taxability of IPR under indirect tax laws has always
been surrounded by murky interpretation. The question of whether to treat a transfer of
intellectual property as "goods" or "services" for the purposes of tax liability persisted prior
to the implementation of the GST regime. The state governments had the right to sales tax or
value added tax if the transaction involving IPR was treated as a sale or deemed to be a sale
of goods, whereas the union government had the right to levy service tax on transactions
relating to IPR if the same were classified as services. When the industry proceeded despite
being leery of the possibility of imposing penalties for tax evasion, this frequently resulted in
double taxation.

IP RIGHTS TAXABILITY

Let's first understand how IP rights, which are intangible property, can be taxed before
moving on to the section on deductions and exemptions. The type of IP must be specified for
it to be taxable. Deductions, exemptions, depreciation, and other related provisions are then
simple to decide. As a result, IPR is recognised by the GST law as a "good," whereas a
licence to use it is classified as a "service." The temporary transfer of the right to use IPR is
acknowledged as a "service," while the permanent transfer of IPR is "good." A.V.
Meiyyappan v. Commissioner (AIR 1969 Mad 284), Commissioner of Sales Tax v. Duke &
Sons (P) Ltd. ((1999) 112 STC 370 (Bom), etc., are a few examples of judicial decisions.

TRANSFER, BOTH TEMPORARY AND PERMANENT

In accordance with the GST, the temporary transfer of any IPR or allowing the use or
enjoyment of any IPR has been treated as a "supply of services" under entry 5(c) of Schedule
II of Section 7 of the CGST Act and is subject to GST@ 12% (6% CGST + 6% SGST),
provided that the IPR in question does not relate to information technology (IT) software.
Additionally, granting permission to use or enjoy IPR in relation to IT software is subject to
taxation at a rate of 18% (9% CGST + 9% SGST) as "Licensing services for the right to use
intellectual property and similar products."

IPR that is permanently transferred is viewed as a supply of goods. If an IPR is permanently

transferred, it is regarded as a supply of goods and is subject to GST @12%.

It is significant to remember that permanent transfer was not previously regarded as a service.
In BSNL v. UOI, the Hon. Supreme Court established an exclusivity test (whether the
transfer, assignment, or licence is exclusive to the transferee) for determining whether or not
the transfer constitutes a sale. It is crucial to remember that under GST laws, it makes no
difference because the transaction will be subject to the same concurrent tax regardless of
how it is carried out.

The issue is whether permanent transfer of IPR is covered under heading 99733 to the
scheme of classification of services or Serial No. 243/Serial No. 452P to the scheme of
classification of goods since permanent transfer of IPR has been treated as goods and services
under GST laws.

A licence is permission granted to do or enjoy something that a person would not otherwise
be legally permitted to do or enjoy. The recipient is only permitted to use IPR, so there is no
transfer of title or ownership; instead, a licensor does not transfer any proprietary interest to
the licensee. Once title or ownership has changed hands, this is referred to as a "assignment,"
which results in the permanent transfer of IPR and makes the assignee the new owner of the
right and entitles them to suo moto exercise. Consequently, a licence, regardless of its terms,
is only permission granted for consideration and is not a transfer of the IPR; it is treated as a
supply of goods under GST.

BRANDED AND UNBRANDED GOODS FOR SALE

Various goods like unbranded cereals, raw grains, pulses, natural honey, paneer, etc. are
exempt from the GST. The same goods, however, are subject to GST when they are packaged
and sold under a registered brand name.

The term "registered brand name" refers to a brand name or trade name that has been
registered under the Trade Marks Act of 1999 in the press release issued by the Ministry of
Finance. Therefore, a situation could develop where a specific company's supply of, say,
pulses sold under a brand name but not registered would be exempt from GST. Under the
GST regime, this could develop into a loophole and have an impact on the intellectual
property sector, where small businesses are concentrated.

COPYRIGHT

According to GST regulations, the supplier of the goods and/or services must forward charge
any applicable tax. However, under the reverse charge mechanism, tax is required to be
deposited on a subset of supplies of goods, services, or both. In this case, the recipient of
services will be responsible for paying any applicable tax in the event that the author,
composer of the music, photographer, artist, or similar person supplied the services by
transferring or allowing the use or enjoyment of a copyright protected by the Copyright Act,
1957.

CONCLUSION

Given the foregoing and the current state of the GST law, there are undoubtedly some areas
where more clarification is needed regarding the taxability of IPRs and the need to close tax
provisions loopholes. Therefore, it is necessary for the government to give clear instructions
in order to prevent disagreements, tax evasion, and the ensuing litigation in the future, as well
as proper compliance to promote ease of doing business.