2007 (3) TMI 140 - AT - Service Tax

Demand and penalty - Department contended that the activity of transfer of technology and know-how services covered under the MCS and accordingly demand were made along with penalty - Held that said activity can t covered under MCS and demand set aside

Summary

Issues:
Service tax liability on UK company for management consultancy services, Penalty imposition under various sections of Finance Act, 1994, Interpretation of agreements for technology transfer and know-how, Definition of "Management Consultant" under Section 65(65) of the Finance Act, 1994.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Mumbai dealt with appeals arising from two separate orders of the Commissioner of Central Excise, which involved common issues and were heard together. In Appeal No. ST/206/06, the Commissioner imposed a service tax liability on a UK company for the period 1997 to 2001, considering the services rendered as "Management Consultancy Services." In Appeal No. ST/207/06, the Indian company was held liable to pay service tax for the period 2002 to 2003 as the recipient of such services. Penalties were imposed on both companies under various sections of the Finance Act, 1994.

Upon careful examination of the relevant clauses of the agreements dated 1993 and 2001, the Tribunal noted that the technical know-how provided by the UK Company to the Indian Company pertained to the goods manufactured in India. The definition of "Management Consultant" under Section 65(65) of the Finance Act, 1994 was scrutinized, which includes services related to the management of an organization. The Tribunal concluded that the services rendered did not align with the definition of "Management Consultant" as the agreements primarily focused on technology transfer for product manufacturing and marketing, not organizational management.

The Tribunal rejected the argument that the services could be categorized as falling within the ambit of "Management Consultant" due to marketing activities being considered part of an organization's working system. The agreements highlighted payment of royalties based on product sales, reinforcing that the services were related to product manufacturing and marketing, not organizational management. Consequently, the Tribunal held that the service tax demands and penalties were unsustainable as the services did not qualify as those provided by a Management Consultant. Therefore, the appeals were allowed, and the demands and penalties were set aside.

In conclusion, the judgment clarified the distinction between services falling under the category of "Management Consultant" and those related to technology transfer and product marketing. By analyzing the agreements and the nature of services provided, the Tribunal determined that the service tax liability and penalties imposed were not justified, leading to the dismissal of the demands and penalties in favor of the appellants.