CESTAT Upholds Service Tax on Imported IPR Services, Allows CENVAT Credit Utilisation Pre-2012

April 2, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has upheld the levy of service tax on services received from abroad under the category of Intellectual Property Rights (IPR) services, while granting partial relief by recognising the validity of payment made through CENVAT credit for the period prior to 1 July 2012.

The Bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) was adjudicating an appeal filed by M/s MLR Motors Ltd. against an Order-in-Original dated 17.05.2013, which had confirmed a service tax demand of ₹1.78 crore.

The dispute arose from payments made by the appellant to M/s Magna Steyr France SAS for technical know-how relating to vehicle design. The arrangement involved exchange of confidential information such as designs, plans, ideas, and cost data. The Department treated this as taxable under Intellectual Property Rights Service and invoked the reverse charge mechanism.

The appellant had discharged most of the liability through utilisation of CENVAT credit and a small portion in cash. However, the Department contended that such utilisation was impermissible, arguing that the appellant, being a manufacturer and not a provider of output service, could not use credit to discharge reverse charge liability.

Before the Tribunal, the appellant argued that the transaction did not qualify as IPR service since no intellectual property recognised under Indian law had been transferred. It was submitted that mere transfer of technical know-how or confidential information does not constitute IPR. The appellant also contended that there was no statutory restriction prior to 01.07.2012 on utilisation of CENVAT credit for payment of service tax under reverse charge.

The Tribunal declined to re-examine the classification issue, noting that the appellant had not seriously disputed classification under IPR services during adjudication. It therefore upheld the classification and confirmed the demand. At the same time, it observed that there was no material on record to establish that the confidential information exchanged was protected under any Indian law, which is relevant in determining taxability under IPR services.

On the issue of CENVAT credit utilisation, the Tribunal ruled in favour of the appellant. Relying on judicial precedents, including High Court decisions, it held that prior to the amendment effective from 01.07.2012, there was no statutory bar on using CENVAT credit to discharge service tax liability under reverse charge. Accordingly, payments made through credit were held to be valid and were directed to be adjusted against the confirmed demand.

With respect to penalties and limitation, the Tribunal upheld invocation of the extended period and penalties under Sections 76, 77, and 78 of the Finance Act, 1994, citing failure to obtain registration and disclose receipt of taxable services. It also denied the benefit of Sections 73(3) and 80. However, the penalty imposed under the CENVAT Credit Rules read with Section 11AC of the Central Excise Act was set aside, noting that there was no prohibition on utilisation of credit during the relevant period.

The appeal was thus partly allowed, with the service tax demand and major penalties sustained, but relief granted on the mode of payment through CENVAT credit.

Cause Title: M/s MLR Motors Ltd. v. Principal Commissioner of Central Tax, Rangareddy
Case No.: Service Tax Appeal No. 27348 of 2013