2005 (12) TMI 558 - AT - Service Tax

Service Tax - foreign company for Consulting Engineers Service - technical know-how/assistance fee - interest - Penalty - HELD THAT - The very definition of Consulting Engineer is till a question mark for the appellant. According to this definition Consulting Engineer means any professionally qualified engineer or an engineering firm, who either directly or indirectly renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering . In order to place any person within the ambit of such Consulting Engineer , the Revenue should, in the first instance, establish that he is a professionally qualified engineer. The Revenue has not established this. The original authority observed that such advice and technical assistance as contemplated under the above agreement cannot be rendered by anybody other than a professionally qualified engineer and, therefore, M/s. Power Gem Ltd., would come within the ambit of Consulting Engineer as defined u/s 65 of the Finance Act, 1994. This observation of the original authority is just a presumption. No tax could be levied on the basis of presumption. The above definition of Consulting Engineer called for a finding, supported by evidence, that M/s. Power Gem Ltd., U.K. were professionally qualified engineers. No such finding is forthcoming from the Order-in-Original. Apart from this, the said order does not even mention the disciplines of engineering in which the so-called advice, consultancy or technical assistance was rendered to the assessee by the foreign company. Thus, the Revenue has not been able to make a good case with reference to the definition of Consulting Engineer . It has been consistently held by this Tribunal that any royalty or other consideration for technical know-how received by an assessee in India from a foreign company was not taxable under the Finance Act, 1994 vide case law cited above. Admittedly, the payment made by the assessee to the foreign company is in the nature of running royalty for the technical know-how/assistance rendered by the latter, which service was not to be treated as Consulting Engineers Service for the reasons already recorded. In the result, the impugned order gets affirmed and this appeal is dismissed.

Summary

Issues:
Interpretation of joint venture agreement for technical know-how payment and Service Tax liability.

Analysis:
The case involved a joint venture agreement between the respondents and a foreign company for technical know-how in manufacturing electronic items in India. The agreement specified annual remuneration to be paid by the respondents to the foreign company. The Revenue considered this payment as consideration for "Consulting Engineers Service" and demanded Service Tax along with interest and penalties. The original authority upheld the demand, leading to the appeal by the assessee.

The Revenue argued that technical assistance and advice mentioned in the agreement constituted "Consulting Engineer's Service" under the Finance Act, 1994. However, the assessee contended that the benefit received was solely technical know-how for manufacturing products in India, not falling under the definition of Consulting Engineer's Service. The Tribunal reviewed various decisions and found no basis for the Revenue's claim.

The Tribunal emphasized the need to establish that the foreign company was a professionally qualified engineer to be classified as a Consulting Engineer. The Tribunal noted the absence of evidence supporting this claim in the original order. Additionally, the order did not specify the engineering disciplines in which the advice was provided, weakening the Revenue's case.

The Tribunal referred to past precedents and reiterated that payments for technical know-how from foreign companies were not taxable under the Finance Act, 1994. The payment made by the assessee was deemed as running royalty for technical assistance, distinct from Consulting Engineers Service. Consequently, the Tribunal affirmed the impugned order and dismissed the Revenue's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the distinction between technical know-how payments and Consulting Engineer's Service. The decision was based on the lack of evidence supporting the Revenue's claims and past precedents exempting such payments from Service Tax.