Commissioner of Service Tax: copyright licences for logos are in fact trademark licences
The order of the High Court of Madras in TT Krishnamachari & Co v Union of India (WP No 1276 of 2010, November 17 2014) has brought to light a ruling of the commissioner of service tax treating copyright licences in respect of a logo as trademark licences for service tax purposes.
The issue arose when the commissioner held that TT Krishnamachari & Co (TTK) was liable to pay service tax on the royalties received from its group companies for using the registered copyright subsisting in the artistic work for the logo depicted below, owned by TTK.
TTK did not agree and filed a writ petition to prohibit the commissioner from levying and collecting service tax on the transfer of right to use copyright.
TTK contended as follows:
The copyright related to goods and the transfer of right to use copyright is taxable under the Sales Tax/VAT Act - there is no liability to pay service tax;
Copyright is specifically excluded from the definition of 'intellectual property service' under Section 65(55a) of the Finance Act 1994; and
The TTK logo is an artistic work registered with the registrar of copyright.
The commissioner contended as follows:
The TTK logo has been used by the group companies in order to create the impression among the public that the products marketed by the group companies are related to TTK;
The TTK logo has been used by the group companies as a trademark and not as an artistic work and, therefore, it falls under the category of taxable intellectual property;
The definition of 'copyright' under the Copyright Act 1957 cannot be merely incorporated into the interpretation of the provisions of the Finance Act: the objects of the Finance Act have to be taken into account when interpreting the provisions of this act;
TTK had not disclosed that it had filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) before filing the writ petition; and
The issue of whether TTK was liable to pay service tax had to be adjudicated by the service tax authorities.
After hearing the parties, the court dismissed the writ petition on the following grounds:
There was a clear bar to jurisdiction with regard to issues relating to classification;
TTK was not entitled to file a writ petition, as it had already relied on its rights before CESTAT; and
TTK’s conduct was questionable since it had not disclosed that it had filed an appeal with CESTAT.
Although the above decision dealt merely with the issue of whether the writ petition could be maintained, the way in which the commissioner approached the dual protection of logos under the Trademarks Act 1999 (as indications of origin) and the Copyright Act (as artistic works) is interesting. IP owners and practitioners tend to use this dual protection to their advantage, whether by filing a combined action for copyright and trademark infringement, or by giving most consideration to copyright assignment rather than trademark assignment to save on stamp duty.
Here, TTK appears to have attempted to use this dual protection to its advantage. However, with authorities looking at the substance of such transactions, one needs to be cautious when seeking to take advantage of the benefits granted by one of the two IP rights.
Adheesh Nargolkar, Shailendra Bhandare and Prajakta Menezes, Khaitan & Co, Mumbai
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