The Supreme Court has sought responses from Mahyco Monsanto Biotech (India), the Maharashtra government and others on the central government’s plea against the Bombay High Court order that held the company not liable to pay service tax but sales tax on sub-licensing of proprietary Bollgard technology (BT) to around 50 seed companies. Seeking setting aside of the HC judgment, the finance ministry said that the sub-licensing of Monsanto activity is in the nature of service transaction, thus liable to service tax under the category of IPR services.
“It is a central levy. The transaction between Monsanto India and the third party is not, and cannot be, a sale assessable under the Maharashtra Value Added Tax Act 2002. It is a service. Monsanto passes no property or estate in the technology itself to the third party developer,” solicitor general Ranjit Kumar argued.
Monsanto India, a joint venture between Monsanto Investment India and the Maharashtra Hybrid Seeds Co, was granted license to use the Bollgard-I and Bollgard-II technology by Monsanto Company, USA in 2002. Monsanto India further sublicenses the technology to third parties. The sales tax is to be paid on trait fee received by Monsanto India on “franchising agreements” that provided only a permissive use of BT to seed companies to enable them to test, produce and sell genetically-modified hybrid cotton planting seeds, according to the HC’s judgement last year in August.
The government further said that the transaction is a single composite transaction and cannot be taxed as both a sale and a service. “Sales tax and service tax are mutually exclusive,” it said while seeking to levy `424.56 crore service tax between July 2008 to 2016. A bench headed by justice PC Ghosh issued notice to the Maharashtra government, Mahyco Monsanto Biotech (India) and others and tagged the finance Ministry’s appeal with another similar appeal by Mahyco Monsanto Biotech.
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According to Monsanto, its activity of sub-licensing technology to seeds companies on a terminable, non-exclusive and non-transferable basis is in the nature of service transaction and thus liable to pay service tax on the fixed fee and trait fee received from various sub-licensees under Finance Act, 1994. “Since the activity of sub-licensing of Monsanto technology to seed companies do not qualify as sale, the levy of VAT per se is illegal and without jurisdiction and could not be imposed on the assessee under Article 246, Entry 54, List II of the VIIth Schedule to the Constitution of India,” the company stated in its appeal.
While the additional commissioner of service tax had clarified that Monsanto India was liable to pay service tax only, the Bombay HC gave a contrary view holding it liable to pay VAT on the transfer of the right to use the technology.