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Challenge against service tax demand on "Engineering Consultancy" under a technical agreement with a foreign company. Analysis: The appeal involved a challenge against a demand for service tax on what the department classified as "Engineering Consultancy" under a technical agreement with an Italian company. The agreement involved the transfer of designs, drawings, and material specifications for the manufacture of diesel engines for tractors. The department considered this transfer as constituting "Engineering Consultancy" under Section 65 of the Finance Act, 1994, leading to a service tax demand on the appellants. The original authority and the first appellate authority upheld this demand, prompting the appeal. During the hearing, the appellants argued that at the time of the dispute in 1999, there was no provision authorizing the levy of service tax on a person in India receiving taxable services from a non-resident. They pointed out that such a provision was only introduced from 16-8-2002, including the service recipient within the definition of "person liable for paying Service tax." The appellants contended that the services provided by the Italian company were in the nature of the transfer of intellectual property rights, which was not taxable at that time. The department, represented by the SDR, reiterated the findings of the lower authorities. The Tribunal, after considering the submissions, focused on a crucial point in the case. It noted that the appellants were recipients, not providers, of the alleged taxable service, which was provided by a foreign company not resident in India. The Tribunal highlighted that the provision authorizing the levy of service tax on service recipients came into effect from 16-8-2002 without retrospective application. Citing a precedent set by a Division Bench in the case of Navinon Ltd. v. CCE, Mumbai, the Tribunal concluded that during the period of dispute before the said date, service recipients were not liable to pay service tax. Therefore, without delving into the nature of the service provided, the Tribunal set aside the demand for service tax and associated penalties. In the final decision, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellants.
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