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 28^th June 2017 provides CGST rates for supply of service. S.No. 17 of the said notification covers rates for intellectual property rights as follows:

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 –

1. GST rate would be 12%, in case of the permanent transfer of intellectual property rights other than Information Technology Software; and
2. 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 14^th November 2017. Vide the said amending notification, S.No.243 was inserted covering rates for intellectual property rights as follows:

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