Order date – 08 September 2022

Facts – 

• The Respondent, M/s Future Brands, were issued Show Cause Notice alleging that the they had not paid service tax on the “right to use” component of the Trademark License Agreement executed on August 27, 2008 between the respondent and Pantaloon Retail (India) Ltd for brand ‘Ajile’.
• The Principal Commissioner, by the impugned order dated May 18, 2015, dropped the show cause notice for the reason that the grant of license under the Trademark License Agreement would amount to deemed sale under article 366 (29A) of the Constitution and, therefore, could not be subjected to levy of service tax.
• Aggrieved, the appellant filed an appeal.

Issue – 

• Whether the Respondent is liable to pay service tax on “right to use” component of the Trademark License Agreement? 

Order – 

• The Tribunal observed that the dispute in the present appeal relates to Trademark License Agreement and is particularly on the ‘right to use’ component of the Agreement, which is to the extent of 65 per cent and not on the Royalty component, which to the extent of 35 per cent. The respondent contended that on the ‘right to use’ component value, it has regularly paid VAT, as it would amount to a deemed sale under article 366 (29A) of the Constitution and, therefore, no service tax is leviable.
• Under Sales Tax, there is transfer of possession and effective control in goods, while there is no such transfer of possession and effective control under Service Tax.
• The Tribunal held that in the case of the Trademark License Agreement an exclusive license to use the trademark in any manner during the term of the agreement was granted. Such a license could not be granted to any other person during the period of the agreement. This would clearly fall within the meaning of the phrase “transfer of right to use the goods” and would be covered by article 366 (29A) (d) of the Constitution. Service Tax would, therefore, not be payable.
• The Principal Commissioner, therefore, committed no illegality in holding that service tax could not be levied on the “right to use” component of the Trademark License Agreement. 
• Therefore the appeal was dismissed.