2011 (4) TMI 572 - AT - Service Tax

Waiver of pre-deposit - Intellectual Property Service - Whether this service can be subjected to service tax under the definition in section 65(31) and 65(105)(g) of the Act for Consulting Engineer Services, prior to 10.9.2004 - Prima facie, accept the contention that for services of Consulting Engineer, charges are linked to the volume of sales of the goods manufactured using such service - prima facie appears that what is transferred is the knowhow of the Appellants and any assistance provided in the initial stage, for which they are not charging is only incidental - Since prima facie convinced that the service is not covered by the entry for Consulting Engineer Services during the relevant period of time, the appellants have made a strong prima facie case for wavier of the demands made in the impugned order - Decided in favour of assessee.

Summary

Issues:
1. Whether the payment received by Indian Oil Corporation Ltd for transfer of technical specifications and knowhow can be subjected to service tax under the definition of Consulting Engineer Services prior to 10.9.2004.

Analysis:
The Appellate Tribunal CESTAT, New Delhi heard an appeal by Indian Oil Corporation Ltd regarding the payment received for transferring technical specifications and knowhow for manufacturing a product called "ZSM-5 Additive." The dispute revolved around whether this service could be subjected to service tax under the definition of Consulting Engineer Services before 10.9.2004. The knowhow was provided to Sud-Chemie India Ltd as per the contract terms, entitling Indian Oil Corporation to 20% of the sale proceeds of goods manufactured using the knowhow.

The appellant argued that they were providing a transfer of knowhow and only provided assistance during the initial three trials without charging for it. Any further assistance required beyond this point would be on a payment basis according to the agreement terms. The appellant relied on precedents such as Shore to Shore Mis Private Ltd Vs CCE Chennai and CCE Vapi Vs M/s Harsiddhi Motors to support their position.

On the other hand, the Revenue contended that the payment received was for continued assistance and supervision for the manufacture of the product, falling under Consulting Engineer Services before 10.9.2004. After considering the arguments from both sides, the Tribunal found that the service provided by Indian Oil Corporation was primarily the transfer of knowhow, with any initial assistance being incidental and not charged for. The Tribunal was not convinced that the charges were linked to the volume of sales, indicating that the service did not fall under the entry for Consulting Engineer Services during the relevant period.

As a result, the Tribunal held that the appellants had made a strong prima facie case for waiving the demands made in the impugned order. Therefore, the requirement of pre-deposit was waived, and the recovery of the disputed tax amount was stayed during the pendency of the appeal. The decision was dictated and pronounced in open court by the Tribunal.