Temporary or permanent transfer of intellectual property attracts 12% GST

Topics SME | MSMEs | sme CHATROOM

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Q. We are manufacturers and exporters of agro chemicals (e.g., pesticides and weedicides). In connection with manufacturing of one of our products, we intend to import process technology to improve the yield of finished goods, with reduced process/production time. The technology is normally imported in electronic form with an option to get a printed copy by courier. Please let us know the tax implications. 

This transaction is transfer of intellectual property. As per entry no. 5(c) of Schedule II to the CGST Act, 2017, “temporary transfer or permitting the use or enjoyment of any intellectual property right” is a service. But, permanent transfer of intellectual property is taxed, inexplicably, as a service as well as goods. As per S.No. 17 of notification no. 8/2017-IT (Rate) dated June 28, 2017, temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right in respect of goods other than information technology software, under the Service Code 9973, attracts IGST of 12 per cent.

As per S.No. 1 of Table in the notification no. 10/2017-IT (Rate) dated June 28, 2017, IGST on such a service from a non-resident to a resident is payable by the recipient of the service under reverse charge mechanism. “Permanent transfer of Intellectual Property (IP) right in respect of goods other than Information Technology software”, falling under any Chapter is classified as goods also and attracts the same IGST rate of 12 per cent under S.No.243 of Schedule II of the notification 1/2017-IT (Rate) dated June 28, 2017. IP finds no mention in the Customs Tariff. 

Q. Under the EPCG scheme, is it necessary that for redemption, the export proceeds should have been realised? Will exports made, for which payment has not yet come forth, be counted towards discharge of export obligation? Please give the relevant provisions. 

Para 5.11 of HBP says “export proceeds shall be realised in freely convertible currency except for deemed exports supplies under Chapter 7. Exports to SEZ units /Supplies to developers/ co-developers irrespective of currency of realisation would also be counted for discharge of Export Obligation. Realization in case of supplies to SEZ units shall be from foreign currency account of the SEZ unit.” Appendix-5C of the HBP also requires the Chartered Accountant to clearly certify that the exporter has submitted e-BRC and the same have been verified. 

Q. We had imported an item (ethyl alcohol: ITCHS Code-22072000), which falls under the Restricted List, duty free under Advance Authorisation, as per Para 4.18 (iv) of FTP, 2015-2020. However, after import, the overseas buyer has cancelled the export orders. The entire imported quantity is lying with us and we do not have any export order. Can we use this imported raw material to manufacture the finished product and sell in the domestic market, after paying Customs Duty, interest and 3 per cent of CIF Value (as per Para 4.49 (ii) of HBP, 2015-2020)?

Yes. The said Para 4.49 of HBP clearly allows regulation of bona fide defaults even in cases where restricted items were imported under advance authorisation and remain unutilised in export production.

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