Principal Commissioner, CGST Delhi South Commissionerate v. Micromax Informatics Ltd.

What happened

Micromax Informatics Ltd. was sued by Telefonaktiebolaget LM Ericsson of Switzerland over the use of Ericsson's patents and technologies, and the Delhi High Court by interim orders in that suit directed Micromax to deposit a total of ₹154,79,43,050. The Directorate General of Central Excise Intelligence took the view that Micromax was the recipient of intellectual property services from a foreign entity and proposed a demand of ₹17,50,38,755 with interest and penalties by a show-cause notice of 27 March 2017, treating the payments under the interim orders as royalty. After the settlement of the suit, Micromax paid ₹96 crore as royalty and IGST at 18%, and the deposited amount was released to the parties. The Tribunal's order of 19 August 2025 in Excise Appeal No. 50318/2019 held that the deposits were mere deposits and not consideration. The Revenue appealed under section 35G.

Questions before the court

• Were the interim deposits payments of royalty, so that service tax was payable on them?
• Did payment of IGST in 2018 on the amount paid under the settlement extinguish the service tax liability for 2013-2016?

Why the court ruled this way

The Court held that the argument that the deposits were payment towards royalty was misconceived. No vested right was created in Ericsson to receive the amount deposited, which remained subject to the outcome of the suit, and when the deposit was directed the Court had not determined that Micromax had used Ericsson's patents, an occasion that never arose after the settlement (paragraph 7). It added that the ₹96 crore paid as royalty under the settlement had been subjected to IGST under the regime applicable at that time. The Revenue's reliance on Idea Mobile Communication Ltd. was misplaced, because the Supreme Court there held that wrongly remitted sales tax would not absolve a person of service tax that was otherwise payable, whereas here the nature of the deposit had not been adjudicated to relate to a taxable service (paragraph 8).

Controlling point

A court-directed deposit made during patent litigation is not royalty consideration for a taxable service unless the underlying liability and the service have been adjudicated, and tax on the royalty actually paid under the settlement was paid under the regime then applicable.

Order and next steps

The Court found no factual or legal error or perversity in the findings of the adjudicating authority as affirmed by the Tribunal, held that no substantial question of law arose and dismissed the appeal.

Practical implications

Amounts paid under a court's interim direction as security in an intellectual property dispute should be documented as deposits with the court order, since the tax treatment follows the nature of the payment, which in this case was decided only on settlement. Tax on any royalty finally paid should be paid under the regime in force on the date of payment.

Limits of this ruling

• The result depends on the finding that the deposits were not shown to be consideration for the use of the patents; the Court did not decide the position for payments made as royalty during the litigation.