2014 (12) TMI 1165 - AT - Service Tax

Waiver of pre deposit - Intellectual Property Right service - Penalty u/s 77 & 78 - Held that - No element of temporality, either in inherence of title in the technical drawings in favour of the petitioner nor in the period for which the petitioner may beneficially use the know-how pursuant to the permanent transfer of technical drawings nor in the extent of the rights to use the technical know-how is evident. The agreement clearly and exclusively transfers permanently the technical drawings. Therefore, the transaction prima facie falls more appropriately within the ambit of sub-clause (a) of Section 65(66b) of the Act but is excluded therefrom in view of exclusion of permanent transfers from the ambit of the sub-clause. - On a prima facie construction of the terms of the agreement read as a whole and a holistic construction of its conditions and covenants, the conclusion is compelling that there is a permanent transfer of intangible goods, from the Swedish entity to the petitioner. Therefore the transaction falls outside the ambit of Section 65(55b)(a) of the Finance Act, 1994, since only a temporary transfer of Intellectual Property is comprehended within the meaning of sub-clause (a) i.e., Intellectual Property Right and the agreement between the parties discloses not a temporary but a permanent transfer. - Strong prima facie case in favour of the appellant - Stay granted.

Summary

Issues:
1. Appeal against rejection of appeal by Commissioner (Appeals)
2. Liability to remit Service Tax
3. Nature of agreement between Indian and Swedish entities
4. Interpretation of agreement in relation to Service Tax liability
5. Prima facie view of the agreement
6. Classification of transaction under Section 65(55b) of the Finance Act, 1994
7. Conclusion on the nature of the transaction
8. Granting of waiver of pre-deposit and stay of further proceedings

Analysis:
1. The appeal was filed against the rejection of the appellant's appeal by the Commissioner (Appeals), upholding the adjudication order passed by the Additional Commissioner, Service Tax, Delhi on 31-5-2012.

2. The order impugned required the appellant to remit Service Tax of Rs. 31.48 lakhs, along with interest and penalties under Sections 77 and 78 of the Finance Act, 1994.

3. The agreement between the Indian corporate entity and the Swedish corporate entity involved the sale and transfer of technical drawings under specific terms and conditions, including exclusivity rights for use in India and China.

4. The Tribunal considered a previous judgment involving a similar transaction but concluded that the nature of the current agreement fell within the right to use intangible property, thus affecting the classification under Section 65(55b) of the Act.

5. Upon a prima facie view of the agreement, it was observed that there was a permanent transfer of technical drawings without any element of temporality, leading to the exclusion of such transfers from the relevant sub-clause of Section 65(66b) of the Act.

6. The Tribunal's analysis suggested that the transaction involved a permanent transfer of intangible goods, which was deemed to fall outside the scope of Section 65(55b)(a) of the Finance Act, 1994, due to the nature of the transfer being permanent rather than temporary.

7. Based on the above analysis, the Tribunal found a strong prima facie case in favor of the appellant and granted a waiver of pre-deposit, staying all further proceedings related to the adjudicated liability pending the disposal of the appeal. The stay application was consequently disposed of.