TOPIC

Introduction Taxation of goods, services and income is a

concept that has been prevalent for a long time all over the world. In India, Intellectual Property is taxed in many ways:

Income Tax Sales Tax Service Tax Customs Duty Central Excise Duty Stamp Duty

Intellectual Property , such as Patents, Copyright, Trademark, Trade secrets are classified as Intangible Property.

Sales Tax on Intellectual Property

Sales Tax was charged on sale of Goods under the Sale Of Goods Act,1930. Central Sales Tax is payable on the sale of all goods by a dealer in the course of

inter- state trade or commerce; Outside a state or ; In the course of import into or export from India. Sales tax is levied on the sale of movable

goods. The levy of sales tax on intangibles has been marred by controversy.

Transactions In IPR

ASSIGNMENT - Sale States are competent to levy Sales

Tax for a transaction under Entry 54 . No sales tax on export/import of

goods LICENSING transfer of right to use goods and

thus a deemed sale

Taxation – Sales Tax

Controversies in taxing intangible assetsControversies in taxing intangible assets In case of interstate transaction, Sec 3, 4 and 5

makes taxing of intangibles difficult.

Section 4Section 4 Physical location of asset is basic criteria for

imposing sales tax by a state government. Controversy of location determination arises in case of assignment of patent, trade mark or copy right.

Section 3 and Section 5Section 3 and Section 5 Actual physical movement of goods is necessary

from one state to another or from outside India to inside or from inside India to outside in order to be charged under CST. Such physical movement may be absent in the case of intangibles.

Definition Of Goods

Sale of Goods Act,1930 – [section 2(7)] “Goods” means every kind of movable property

other than actionable claims and money…… Both corporal and incorporeal Both tangible and intangible

Central Sales Tax Act ,1956 - [section 2 (d)] “Goods” includes all materials, articles,

commodities and all other kinds of movable property, but does not include newspapers, actionable claims, stocks, shares and securities.

Tax Implications

Are IPR’s

Goods Services Both

Are IPR’s Goods

The Supreme Court held that intangibles are Goods for the Purpose of “Sales tax”.

MPEB 25 STC 188(SC) Held that Electricity is goods.

Anraj 61 STC 165(SC) Held that Lottery Tickets are goods.

Vikas 102 STC 106 (SC) It was held that Import License are Goods.

ACC 4 SCC 593 (SC) Drawing and designs put in a media are

goods for customs purposes.

Duke 112 STC 371 (BOM) Trademarks are goods.

A V Meyappan 20 STC 115 Mad Copyrights are goods.

Patents – referred as goods in the Case of Vikas.

Scientific Engineering AIR 1986 SC 338 Technical Know how was held to be

goods.

Tata Consultancy Services –VS- State of Andhra Pradesh (2005)1 SCC 308 This is a landmark judgment of the

Supreme Court of India, on the definition of ‘Goods’.

Held that states have the power to levy

tax on the transfer of intangible assets.

Test to determine “Goods” In India the test to determine whether a

property is ‘goods’ for the purpose of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the item concerned is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc.

This necessarily implies that states have the right to tax transfer of IP.

Bharat Sanchar Nigam Ltd. -VS- Union of India (2006) 1453 STC 91

The Hon. Supreme Court held that goods may be a tangible property or an intangible one, it would become goods, if it satisfies the test.

Inter- state Transfer in case of tangible goods As per sec 3&4 of the CST Act if goods

moving in pursuance of contract:

Taxable in the state where the movement commences

In case of goods not moving pursuance of the contract, then taxable in the state where the appropiation is made.

Inter- state Transfer in case of intangible goods

Intangibles like patents, copyrights, trademarks since there is no movement of goods as such, transfer thereof is taxable in the State where agreement is made.

Conclusions

A comprehensive IP tax regime should be developed.

Uniform IP tax policy should be adopted.

Provisions of IP need to be codified for better assessment and administration.

No mechanism in India to monitor the movement of IPR’s inter – state for the purpose of taxing.