2.4 Temporary transfer of IPR or permission to use without transfer

A person acquires a legal right over the IP when he is recognized as the proprietor under the IP laws. On assignment and transmission, the assignee or the person to whom the rights are transmitted is recognized as the proprietor of the IPR. The service tax is levied when the holder of the IPR provides some service. Hence, consideration received by the original holder on assignment or transmission is not taxable as the IPR is transferred permanently and permanent transfer is not covered within the scope as it amounts to sale and person selling the rights no longer remains a holder of intellectual property rights.
Only a temporary transfer or grant of licence for use of IPR, which does not effect change in the proprietorship of the IPR is within the ambit of service tax.
Traditionally, most of the IPRs are owned by foreigners, who are also registered under Indian laws. It may be possible that they sell their IPRs under Indian laws permanently to their Indian partner and hold the same for rest of the world. In this case, as the Indian buyer becomes the proprietors of the IPR or IPR holder, such transfer will not be within the ambit of service tax, even though, the foreigner is IPR holder in other countries. It is immaterial whether the Indian buyer makes a lump sum payment or pay over a period of time. However, if the payment is made based on the production, it may fall within the ambit of taxable event.