GST on Intellectual Property Rights

Intellectual property is a type of property which includes intangible creations of human intelligence (human brain). Some of the most famous types of

intellectual property are patents; copyrights; trademarks etc. Intellectual property rights allow the creators or owners, of the patents; copyrights or trademarks, to generate economic benefits from their own work or creation. However, the intangible nature of the intellectual property rights always creates difficulties in the taxation front as compared with the traditional tangible property like lands, building etc.

Understanding the Intellectual Property Rights under GST

As we all know, under

GST, tax is levied on the supply of ‘Goods’ or ‘Services’. The GST Act has provided a definition of ‘Goods’ [Section 2(52) of the Central Goods and Service Tax Act, 2017] as well as ‘Services’ [Section 2(102) of the Central Goods and Service Tax Act, 2017]. Further, the Act also deemed certain transactions as a supply of goods and deemed certain transactions as a supply of services [Schedule II of the Central Goods and Service Tax Act, 2017]. Intellectual property is an intangible right, and it is hence always difficult to conclude the form of the intellectual property i.e. whether it is ‘Goods’ or ‘Service’. Notification no.11/2017 – Central Tax (Rate) dated 28th June 2017 provides CGST rates for supply of service. S.No. 17 of the said notification covers rates for intellectual property rights as follows:

S.No.	Heading	Description of Service	Rates
17	Heading 9973 (Leasing / rental services with or without operator)	Temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in respect of goods other than Information Technology software	6%
Temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in respect of Information Technology software	9%

Thus, from the above, one can easily conclude that under GST, intellectual property rights are treated as ‘Services’. However, confusion begins when we refer to point 4 i.e. ‘explanation’ contained in the said notification no.11/2017 – Central Tax (Rate) dated 28

th June 2017. As per explanation (ii) of point no. 4, it clearly states that the reference to ‘Chapter’, ‘Section’ or ‘Heading’ shall mean respectively as ‘Chapter’, ‘Section’ and ‘Heading’ in the Scheme of classification of service. It is worthwhile to note here that, heading 9973 of the scheme of classification of service covers only ‘licensing service’ i.e. temporary transfer for the right to use the intellectual property. Thus, it can be interpreted that the heading 9973 doesn’t cover the permanent transfer of intellectual property.

Clarification by GST council through a press release

Due to confusion prevailing in the trade and industry and various cases involved in the matter, regarding intellectual property rights, to be treated as ‘Goods’ or ‘Services’, the GST council tried to clarified the points vide press release dated 10

th November 2017. In the said press release at entry (iii) of part (B), the GST council proposed that, irrespective of permanent intellectual property transfer is a supply of Goods or Services, the rate of GST would be as under –

GST rate would be 12%, in case of the permanent transfer of intellectual property rights other than Information Technology Software; and
GST rate would be 18%, in case of the permanent transfer of intellectual property rights in case of Information Technology Software.

New notification after GST council press release

After the GST council press release, clearing the confusion, notification no.1/2017 – Central Tax (Rate) dated 28

th June 2017 was issued. The said notification provides CGST rates for supply of goods which was amended vide notification no.41/2017 – Central Tax (Rate) dated 14th November 2017. Vide the said amending notification, S.No.243 was inserted covering rates for intellectual property rights as follows:

S.No.	Heading	Description of Service	Rates
243	Any Chapter	Permanent transfer of Intellectual Property rights in respect of goods other than Information technology software	6%

The entire notification can be accessed below. The content specific to intellectual property can be found in Page 9 of the notification:

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Frequently Asked Questions

Common questions about GST on Intellectual Property Rights: Taxation Insights.

Under GST, Intellectual Property Rights are treated as 'Services'. The GST Act has provided a definition of 'Services' under Section 2(102) of the Central Goods and Service Tax Act, 2017, which would cover Intellectual Property Rights.

The GST rate for temporary transfer or permitting the use or enjoyment of Intellectual Property Rights in respect of goods other than Information Technology software is 6%. For Information Technology software, the rate is 9%.

Initially, there was confusion regarding whether the GST rate for heading 9973 (covering licensing services) would also apply to permanent transfer of Intellectual Property Rights. However, the GST Council clarified that separate rates would apply for permanent transfer.

As per the clarification by the GST Council, the GST rate for permanent transfer of Intellectual Property Rights in respect of goods other than Information Technology Software is 12%. For Information Technology Software, the rate is 18%.

The GST Council clarified the rates for permanent transfer of Intellectual Property Rights through a press release dated 10th November 2017.

After the GST Council's clarification, Notification No. 41/2017 – Central Tax (Rate) dated 14th November 2017 was issued, inserting S.No. 243 in the Goods rate schedule, specifying the rate of 6% for permanent transfer of Intellectual Property Rights in respect of goods other than Information Technology Software.

Yes, there is a difference in GST rates for Intellectual Property Rights related to Information Technology Software. The rate for temporary transfer is 9%, while the rate for permanent transfer is 18%.

The 'Heading' in the GST rate notifications is important because it determines the scope of the rate entry. Initially, there was confusion whether Heading 9973 (for licensing services) covered permanent transfer of Intellectual Property Rights as well.

The confusion arose due to the intangible nature of Intellectual Property Rights, making it difficult to classify as 'Goods' or 'Services'. Additionally, the initial notification and its explanation created ambiguity regarding the scope of Heading 9973.

The GST Council's press release clearly stated that irrespective of whether permanent transfer of Intellectual Property Rights is a supply of Goods or Services, separate GST rates would apply. This clarification helped resolve the confusion prevalent in the trade and industry.