Intellectual Property RightFEB 19, 2021
Intellectual Property Right0
Intellectual property (IP) refers to property that comes into existence from application of human intellect. It includes all the intangible creations of mind such as inventions, literary and artistic works, designs, logos and symbols, names, tag lines and images used in commerce.
Intellectual Property Right
IP is protected in law by which it helps people to earn recognition or financial benefit from what they invent or create.
Intellectual property rights are legal rights that provide creators protection for original work, inventions, or the appearance of products, artistic works, scientific developments, and so on.Intellectual Property Rights includes-
- Industrial design rights
- Plant variety rights
- Trade dress
- Geographical indications
- Trade secrets
The intangible nature of intellectual property presents difficulties when compared with traditional property like land or goods. Unlike traditional property, intellectual property is “indivisible”, since an unlimited number of people can “consume” an intellectual good without it being depleted.
GST Implication on Intellectual Property
Once the IP is created, it can be commercialized either by Sale/ Transfer/ Licensing/ Assignment. Moreover, transfer of such rights can be temporarily or permanently. In this way, it becomes subject to taxation under the indirect tax regime.
GST is leviable on Supply of Goods & Services. The first and foremost aspect regarding every transaction related to Intellectual Property is to determine whether it would be the supply of “goods” within the meaning of Section 2(52) of CGST Act or supply of “Services” within the meaning of Section 2(102)?
Let us analyse the related GST provisions to understand the same.
GOODS: According to sec. 2(52) of CGST Act, Goods means every kind of movable property other than money and securities. It also includes actionable claims, growing crops, grass or anything attached to a part of the land which is agreed to detach from the land before supply or contract of supply.
The Supreme Court in Vikas Sales Corporation v. Comm. MANU/SC/0519/1996 observed that ‘property’ would include things such as patents, copyrights, and trademarks.
SERVICE: According to sec. 2 (102) of CGST Act, services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Service means anything other than goods, money and securities.
Goods Rate Notification-
In terms of Sr.No.243 of Schedule II of Central Tax rate Notification No.01/2017-CT(R) dated 28.06.2017 as amended by Notification No. 41/2017-CT(R) dated 14.11.2017,
permanent transfer of Intellectual Property Right (IPR) other than Information Technology Software attracts GST @12%
Service Rate Notification
Notification No.11/2017-CT(R) dated 28.06.2017 as amended, prescribes rate notification for service. It provides as under
|17||Heading 9973 (Leasing or rental service, with or without operator)||‘Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information and Technology software’||6%|
Though the notification uses the term ‘permanent transfer’ as well, does not seem to be applicable where the underlying transfer is a supply of goods.
We can look at the overlapping entries in both the Notifications. Therefore we need to take a decision from the technical standpoint regarding which entry will more appropriately apply in case of permanent transfer.
If we look at the explanation of said Service Rate Notification, it states that Reference to “Chapter”, “Section” or “Heading”, wherever they occur, unless the context otherwise requires, shall mean respectively as “Chapter, “Section” and “Heading” in the annexed scheme of classification of services (Annexure).So this is a very important classification determinant.
The Notification incorporates the annexure as a part of the notification itself.
Caption heading of the group 9973 refers to licensing or right to use intellectual property and similar services. We should note that while in the rate notification it said temporary or permanent transfer but in the annexure it refers only to licensing services.
Annexure therefore does not appear to cover “Assignment” of the IP and only provides for the “Licensing” part.
There can be various interpretations regarding transactions in terms of “assignment” versus “licensing”. The way in which we can resolve this conflict would be challenging.
Schedule of GST rates as approved by GST Council in its meeting dated 19 May 2017 based on the recommendations of the fitment committee suggested only “temporary transfer” should be regarded as services.
Also, Schedule II to CGST Act, specifically states at entry 5(c)
- Supply of Service
Further, Press Release dated 10 November 2017 states-
In order to obviate dispute and litigation, it is proposed that irrespective of whether permanent transfer of Intellectual Property is a supply of goods or service.-
- permanent transfer of Intellectual Property other than Information Technology software attracts GST at the rate of 12%; and
- permanent transfer of Intellectual Property in respect of Information Technology software attracts GST at the rate of 18%
ConclusionIt can therefore be inferred that the Press Release and the Annexure indicates that:
- Permanent transfer of Intellectual Property (assignment) should be considered as goods,
- Temporary transfer for Licensing, a service
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