2007 (4) TMI 48 - AT - Service Tax

Demand(Service tax) Revenue contended that appellant activity is covered under Consulting Engineer and liable for service tax - Held that appellants have paid royalty fees to their holding company for use of technology provided not covered under Consultancy Engineer Service and not liable for service tax

Summary

Issues:
1. Taxability of royalty fees for the supply of technical know-how.
2. Taxability of management consultancy fees.
3. Abatement claimed from total payment made towards expenses incurred.
4. Rate of service tax applicable for a specific period.
5. Penalty imposed under Section 78 of the Finance Act.

Taxability of Royalty Fees for Technical Know-How:
The Commissioner (Appeals) held that payment made for the transfer of technology does not attract service tax as it does not involve consultancy. Citing the case of M/s. Navinon Limited v. Commissioner of Central Excise, Mumbai, it was established that royalty payment for technical know-how is a share of profit and not a service attracting service tax. The Tribunal upheld this view, setting aside the demand for royalty fees.

Taxability of Management Consultancy Fees:
Regarding management fees paid, the appellants disputed the quantum of service tax and abatement claimed from total expenses incurred. The Tribunal noted that without specific evidence and details of deductions, no deduction could be permitted. The gross amount charged by the service provider for the service rendered is taxable. The Tribunal upheld the demand for management consultancy fees and interest under Section 75 of the Finance Act.

Abatement Claimed from Total Payment Made Towards Expenses Incurred:
The Tribunal concurred with the view that expenses incurred are abatable but rejected the claim due to lack of evidence on the quantum of abatements. It was emphasized that deductions could only be given with documentary proof of expenses like pocket expenses separately reimbursed by the client.

Rate of Service Tax Applicable for a Specific Period:
The appellants claimed that the service tax was enhanced only from a specific date, and the rate applicable before that was lower. However, they failed to provide documents evidencing service rendered and billing before the specified date. As a result, no relief could be granted without proper documentation.

Penalty Imposed Under Section 78 of the Finance Act:
The Tribunal found the penalty imposed under Section 78 justified due to the appellants' failure to examine the taxability of the management consultancy service received. The penalty was reduced from the initial amount, but other penalties were upheld. The Tribunal emphasized that penalties were justified given the professionalized management of the appellants.

In a separate judgment, the Tribunal noted that the issue of taxability of technical know-how received from foreign collaborators had been extensively covered in various tribunal decisions. It was established that such services did not fall under the category of 'consulting engineer,' leading to the setting aside of demands and penalties. The Tribunal rejected the appeal, citing that the issue was settled in favor of the assessee.