2011 (9) TMI 810 - AT - Service Tax

Consulting engineer s services - one time or running royalty - As per the agreement, the respondent was to depute their personnel to give technical advice and guidance in connection with manufacture of motor vehicles based on the technology transferred - The technical know-how made available by the respondent to M/s. Maruti Udyog Ltd. was to be used only for manufacture and sale of the models of cars mentioned in the agreement and not for any other products - Tribunal in the case of CCE, Chennai-III v. Video Friction Material India Pvt. Ltd. (2005 -TMI - 252 - CESTAT (CHENNAI) - Held that the service provided by M/s. Suzuki Motor Corporation, Japan during the period of dispute could not be classified as Consulting Engineers service and the same did not attract any service tax - Decided in favor of the assesseee

Summary

Issues:
Interpretation of service tax liability on technical know-how transfer and assistance provided under an agreement between two companies.

Analysis:
The case involved a dispute regarding the service tax liability on the transfer of technical know-how and assistance provided under an agreement between a foreign company and an Indian company for the manufacture of certain car models. The appellant argued that the consideration received was for engineering consultancy services, thus attracting service tax under the relevant sections of the Finance Act. However, the Commissioner, in the Order-in-Original, held that the consideration was for the transfer of technical know-how and not for consultancy services, thereby dropping the proceedings against the respondent. The Commissioner's decision was challenged, leading to the present appeal.

Upon hearing both sides, the Tribunal examined the agreement between the parties and noted that the purpose was the transfer of technology for the manufacture and sale of specific car models in India. The consideration for this transfer was a lump sum payment and running royalty. The Tribunal referred to precedents where it was established that the transfer of technology against payment of royalty does not constitute consulting engineer's service liable for service tax. Citing cases such as CCE v. Reichie De Massari Ag Switzerland and others, the Tribunal concluded that the service provided by the foreign company in this case did not fall under the category of consulting engineer's service, and therefore, no service tax liability existed.

In light of the above analysis and legal precedents, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to drop the proceedings against the respondent. The judgment clarified that the transfer of technical know-how under licensing agreements, even with royalty payments, does not attract service tax as consulting engineer's service.