Royalty for Exclusive 99-Year Trademark Use Qualifies as Deemed Sale, Not Taxable as Service: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that royalty paid for the exclusive, long-term use of a trademark qualifies as a "deemed sale" and is therefore not taxable as a service. The case involved a 99-year agreement for the exclusive right to use a trademark. The tribunal held that such an arrangement effectively transfers the right to enjoy the trademark, which amounts to a deemed sale of goods under Article 366(29A) of the Constitution. Since the transaction was classified as a sale, it could not simultaneously be taxed as a service under the Finance Act, 1994. This decision is crucial as it distinguishes between a temporary license to use a trademark (which is a service) and a long-term, exclusive transfer of rights (which is a sale), preventing double taxation on the same transaction and providing clarity on the tax treatment of intellectual property rights.