Service Tax on Intellectual Property Services

Service tax is leviable on intellectual property services rendered by an individual or entity in India. As per the Service Tax, intellectual property service means the temporary transfer or permitting the use or enjoyment of any intellectual property right like trademark, designs or patent. In this article, we look at the service tax applicable on trademark, designs and patents.

Applicability of Service Tax on Intellectual Property Services

Intellectual property rights is the right to an intangible property, namely, trademark, designs, patents or any other similar intangible property. Intellectual property services is the service provided or to be provided to any person, by the holder of intellectual property right, in relation to intellectual property right. Hence, temporarily transferring or permitting the use or enjoyment of any intellectual property right is termed as an intellectual property service and service tax is applicable.

On the other hand, services provided for registration of intellectual property like trademark registration service, copyright registration service and patent registration service do not fall under intellectual property services. Such services are classified as legal services and the provisions mentioned in this article do not apply.

When Service Tax is Applicable

Service tax is applicable only when the owners of an intellectual property rights allows a person to temporarily use the intellectual property in exchange for consideration. However, in case of a permanent transfer of intellectual property right, there is no rendering of service. Hence, the sale of intellectual property services does not come under the purview of taxable services, as the owner no longer remains a owner of the intellectual property right.

Service Tax on Copyright

Earlier, temporary transfer of copyright was not under taxable services, as the definition of taxable service includes only trademark, designs and patent, except copyright. Hence, as per the law at the time, service tax was only chargeable on Intellectual Property Rights covered under Indian law – in force at that time. However, subsequently, the levy of service tax on income generated from temporary transfer of rights to use cinematographic films has been validated by the Courts. This means that service tax has to be paid for distribution of films and selling of rights to television. Such “temporary transfer” or permission to use the copyright is now taxable under service tax.