Temporary vs. Permanent Transfer of IPR: An Analysis of GST rates
In the 45th GST council meeting, the GST rates of permanent transfer of IPR services is increased from 12 percent to 18 percent. There was no further amendment in the rate of goods notification except the increment of service tariff from 12 to 18 percent. GST rates of 18% on permanent transfer of IPRs has been amended in order to avoid any ambiguities.
The notification no. 13/2021 dated October 27, 2021 was released by central tax to put GST rate on permanent transfer of IPR in respect of goods by increasing GST rate and made it at par with supply of services.
After effect of the new amendment in permanent transfer of IPRs
The Central Board of Indirect Taxes and Customs (CBIC) announced an 18 percent GST on the temporary or permanent transfer of or permission to use or enjoy Intellectual Property Rights (IPR). The Board empowered under sub-sections (1), (3), and (4) of section 9, sub-section (1) of section 11, sub-section (5) of section 15, sub-section (1) of section 16, and section 148 of the Central Goods and Services Tax Act, 2017, the Central Government, on being satisfied that it is necessary for the public interest, amended notification No.11/2017- Central Tax (Rate), dated the 28th June 2017.
The GST rate of 18% applies to the temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) rights; services by way of job work in relation to the manufacture of alcoholic liquor for human consumption and other manufacturing services; publishing, printing, and reproduction services; and materials recovery services. Furthermore, 18% GST is required on entrance to theme parks, water parks, and any other location with joy rides, merry-go-rounds, go-carting, or ballet.
The Board has announced that 28 percent GST would be levied on services such as entry to (a) casinos or race clubs or any location with casinos or race clubs, or (b) sports events such as the Indian Premier League.
Pre and Post GST regime under IPR
Pre regime: – The Goods and Services Tax Law does not define what intellectual property rights are, but in MoF (DR) Decree B2/8/2004TRU of 1092004, the definition states that “Intellectual property arises from the application of intelligence, Permanent transfers of intellectual property rights in the pre- GST regime in the form of books, goodwill, etc. did not constitute provision of services. C.B.E. & C. Circular F. No. B2/8/2004TRU, Issue 1092004, “Permanent transfer of intellectual property rights does not constitute the provision of any service. Such transfer leaves the person selling such rights as an “intellectual property owner” no longer subject to taxable services. Therefore, there is no service tax on the perpetual transfer of intellectual property.”
Also, in case of Thermax Ltd. Vs. Commissioner of Central Excise, Pune-I – 2014 (36) S.T.R. 318 (Tri.-Mumbai) the courtroom docket reiterated the view that “it’s also very clean from the stated Circular that a everlasting switch of highbrow assets proper does now no longer quantity to rendering of service. In the existing case, the appellant has emerge as a co-proprietor of the highbrow assets which might imply that the switch is everlasting. Therefore, the transaction does now no longer come beneath Neath the purview of Section 65(55b) of the Finance Act, 1994.”
Post regime: – According to the Goods and Services Tax Act, a permanent transfer of intellectual property rights is classified as a supply of goods. Additionally, section 9(1) of the Central Goods and Services Tax Act of 2017 states that the central government is authorized to impose CGST on all domestic supplies of goods or services. Central Tax (Tax Rate) Heading 9973 “Temporary or permanent assignment or permission to use or enjoy intellectual property (IP) rights in goods other than information technology software” is subject to 12% (6% CGST + 6% SGST) .  and in the product category, “perpetual transfer of intellectual property (IP) rights in goods other than information technology software” are taxed at 12% (CGST 6% + SGST 6%).
Announcement dated October 27, 2021 (Notice No. 13/2021 central tax rate (tax rate) revised the tax rate for goods and services from 12% to 18% in case of permanent transfer of intellectual property rights and additionally changed Notice No.01 /2017 2017 The central tax (tax rate) of 28 June, is intended to harmonize the VAT rate for the perpetual transfer of intellectual property rights in goods and services.
GST rates after 18%
The impact of new amendment has mainly affected transactions which are related with publishers dealing with authors, royalty payment of auto OMEs under JVs, M&A deals relating to brand transfers, etc.
There are various rulings under the old Indirect Tax legislation, where the permanent transfer of IPRs were regarded as commodities. Taking note of the fact that controversy may emerge about the categorization of the permanent transfer of IPRs under GST, the Government, previous to this change, supplied the same description under the tariff notification related to goods as well as services. We may learn the same from a comparison table presented below: –
|Description under rate notification of goods||Descriptions under rate notifications of services||GST Rates|
|Permanent transfer of Intellectual Property (IP) right in relation of items ‘other than Information Technology software’||Temporary or permanent transfer or authorizing the use or enjoyment of Intellectual Property (IP) right in relation of items other than Information Technology software.||12%|
|Permanent transfer of Intellectual Property (IP) right in respect of ‘Information Technology software’||Temporary or permanent transfer or authorizing the use or enjoyment of Intellectual Property (IP) right in relation to Information Technology software||18%|
The adjustment has now only been made to raise the GST rate from 12% to 18% under service tariff notice. There has been no such change to the rate notification for Goods. This would open the door to litigation, since one may claim that permanent transfer of IPRs qualifies as a sale of commodities, and so the appropriate GST would be 12 percent.
The inclusion of a precise rate of 18% in the service tariff notice, effective October 1, 2021, would put an end to any additional confusions about the availability of 5% GST. Prior to the inclusion of a particular provision in the amendment, it was widely assumed that alcohol is equal to food and food products, and hence employment labor services related to the same are taxed at 5%.
According to Section 9 (1) of the Central Goods and Services Tax Act of 2017, “a tax known as the central goods and services tax must be imposed on all intra-State sales of goods or services or both,… as may be specified by the Government on the recommendations of the Council…” According to the Central Tax (Rate), “Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12 percent (6 percent CGST+6 percent SGST), and “Permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software” is taxed at 12 percent (6 percent CGST+6 percent SGST). [Emphasis added.]
Because the phrase ‘permanent transfer’ is included for both categories, products and services, it may seem that all types of services possibly entail permanent transfer. However, a look at the heading of 9973 reveals that this is not the case. 9973’s header is “Leasing / rental services with or without operator.” As a result, the heading 9973 makes it apparent that the heading’s scope is confined to the specific services stated in the heading. As a result, it is this author’s judgment that, with the exception of leasing and rental services, all other services constitute only a temporary transfer, and that even leasing and rental services may, depending on the facts, entail only a temporary transfer. Goods, on the other hand, always imply a continuous transfer. Apart from the particular exception, it seems that temporary transfer or license is seen as a provision of service, while permanent transfer of intellectual property is regarded as a supply of commodities. As a result, in my judgment, the legal situation has remained virtually intact since the implementation of the GST system.
Temporary transfer Vs. Permanent transfers: Supply of goods or services?
Supply of services: Clause (ii) under Heading 9973 uses the words “Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right. Prima facie, this gives an impression that permanent transfer of IPR shall also be treated as supply of services in GST.
Supply of goods:
- For period 01.07.2017 to 14.11.2017 – Permanent transfer of IPR covered only under services rate notification in GST and hence to be treated as supply of services.
- For period 15.11.2017 onwards – Permanent transfer of IPR covered under both goods and services rate notification in GST as services rate notification has not been amended yet to remove the reference of ‘permanent transfer’ of IPRs. Hence, quandary as to taxability of IPRs as goods or services continue to exist in GST regime also.
Since rate of GST to be applied is also different for permanent transfer of IPR being 18%, if treated as ‘supply of services’ and 12%, if treated as ‘supply of goods’, there was an ambiguity as to treatment of same. This is now aligned for GST rate on permanent transfer of Intellectual Property Right (“IPR”) in respect of goods by increasing GST rate from 12% to 18% and made it at par with supply of services.
The doctrinal stance of law has remained constant throughout the years, despite changing statutes and increasing case law. Permanent transfer of intellectual property law is not regarded as service providing. Despite the fact that the relevant tax on both permanent and temporary transfer of intellectual property rights is currently the same rate, the GST legislation has mandated that only permanent transfer of intellectual property rights is deemed a supply of goods and is taxed appropriately.
The blog has been written by Mr. Piyush Khatri (Assisted by Mr. Ayush Garg – Intern).
 Central Goods and Services Tax Act 2017, s. 11.
 Central Goods and Services Tax Act 2017, s. 15, cl. 5.
 Central Goods and Services Tax Act 2017, s. 16, cl. 1.
 Central Goods and Services Tax Act 2017, s. 148.
 Central Goods and Services Tax Act 2017, s. 9, cl. 1.