Service tax on royalty

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  1. Sanjay Srivastava

    Sanjay Srivastava New Member

    We signed a Memorandum of Understanding (MOU) some times back with a Hyderabad based private company to develop a technology for rapid soil testing. It was agreed that the concerned firm will pay a royalty of 2.6% on sales of this technology after it is handed over to them.

    Now, the technology is ready but the problem is that the concerned firm is not ready to pay service tax (15%) on royalty by putting an argument that this was not documented in MOU. Instead, only 2.6% royalty on sales was mentioned.

    Our argument is that this 15% service tax on royalty is included as cost and burdened on customer and is included in price. But, the manufacturing firm is only sticking on MOU and not ready to pay service tax.

    What is the rule/law in this.

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