GST on Intellectual Property Rights-

 

 

Intellectual Property Rights

 

Intellectual property rights are like any other property right. Its allows its creators, or owners, of patents, trademarks or copyrighted material to profit from their work or investment. These rights are described in the Universal Declaration of Human Rights, Article 27. These rights provide for the right to benefit from the protection of moral and material interests/benefits resulting from authorship of scientific, literary or artistic productions.

 

GST on Intellectual Property Rights-

 

As we all know, under GST, tax is levied on the supply of ‘Goods’ or ‘Services’. The GST Act has provided a definition of ‘Goods’ [Section 2(52) of the Central Goods and Service Tax Act, 2017] as well as ‘Services’ [Section 2(102) of the Central Goods and Service Tax Act, 2017]. Further, the Act also deemed certain transactions as a supply of goods and deemed certain transactions as a supply of services [Schedule II of the Central Goods and Service Tax Act, 2017].

 

Intellectual property is an intangible right, and it is hence always difficult to conclude the form of the intellectual property i.e. whether it is ‘Goods’ or ‘Service’.

 

Notification no.11/2017 – Central Tax (Rate) dated 28th June 2017 provides CGST rates for supply of service. S.No. 17 of the said notification covers rates for intellectual property rights as follows:

 

Description of Service Rates

 

(S.No. 17 -Heading17 Heading 9973  -)

1.(Leasing / rental services with or without operator) Temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in respect of goods other than Information Technology software 6%.
2.Temporary or permanent transfer or permitting the use or enjoyment of intellectual property rights in respect of Information Technology software 9%

 

Thus, from the above, one can easily conclude that under GST, intellectual property rights are treated as ‘Services’. However, confusion begins when we refer to point 4 i.e. ‘explanation’ contained in the said notification no.11/2017 – Central Tax (Rate) dated 28th June 2017.

 

As per explanation (ii) of point no. 4, it clearly states that the reference to ‘Chapter’, ‘Section’ or ‘Heading’ shall mean respectively as ‘Chapter’, ‘Section’ and ‘Heading’ in the Scheme of classification of service. It is worthwhile to note here that, heading 9973 of the scheme of classification of service covers only ‘licensing service’ i.e. temporary transfer for the right to use the intellectual property. Thus, it can be interpreted that the heading 9973 doesn’t cover the permanent transfer of intellectual property.

 

 

Clarification by GST council through a press release

 

Due to confusion prevailing in the trade and industry and various cases involved in the matter, regarding intellectual property rights, to be treated as ‘Goods’ or ‘Services’, the GST council tried to clarified the points vide press release dated 10th November 2017.

 

In the said press release at entry (iii) of part (B), the GST council proposed that, irrespective of permanent intellectual property transfer is a supply of Goods or Services, the rate of GST would be as under –

 

1.GST rate would be 12%, in case of the permanent transfer of intellectual property rights other than Information Technology Software; and
2.GST rate would be 18%, in case of the permanent transfer of intellectual property rights in case of Information Technology Software.