2012 (5) TMI 375 - AT - Service Tax

Cenvat credit - technical knowhow imported - assessee paid service tax on royalty and took CENVAT credit thereof under the head Intellectual Property Service Held that - technical knowhow imported by the appellant consisted of product technology and process technology. If that be so, it requires to be examined as to whether these technologies had any nexus with the manufacture of automobile parts as required by the statutory definition of input service. This aspect could be examined only with reference to the terms and conditions of the licence agreement. appeal stands allowed by way of remand

Summary

Issues:
1. Whether the importation of technical knowhow constitutes an 'input service' for CENVAT credit.
2. Whether the authorities below correctly examined the case and the relevant license agreement.
3. Whether the technical knowhow imported has a nexus with the manufacture of automobile parts as required by the statutory definition of input service.

Issue 1: Importation of Technical Knowhow as 'Input Service'
The appellant imported technical knowhow from a US company under a license agreement, paying royalty based on total sales. The department alleged that this importation did not qualify as an 'input service' under CENVAT Credit Rules, issuing a show-cause notice for recovery. The appellant argued that the technical knowhow constituted 'intellectual property service' eligible for credit. However, the authorities did not examine the license agreement, leading to non-speaking orders. The Tribunal held that the terms of the agreement were crucial to determine if the importation had a nexus with manufacturing automobile parts, remanding the case for a correct decision after proper examination.

Issue 2: Examination of Case and License Agreement
The original authority and appellate authority did not analyze whether the technical knowhow importation qualified as an 'input service.' The appellant failed to provide the license agreement initially, and the authorities did not have access to it. Despite the appellant's claim that auditors reviewed the agreement, no evidence was presented. The Tribunal emphasized that the agreement's terms were essential to establish the nexus between the imported knowhow and manufacturing activities. The lack of the agreement hindered the authorities from making an informed decision, resulting in non-speaking orders.

Issue 3: Nexus of Imported Knowhow with Manufacturing
The appellant contended that the imported technical knowhow included product and process technology relevant to manufacturing automobile parts. The Tribunal emphasized that determining the nexus between these technologies and manufacturing required a thorough examination of the license agreement. It directed the original authority to conduct a proper assessment, considering all relevant factors, and make a well-founded decision after allowing the appellant to present evidence and arguments. The appeal was allowed for further review and analysis.

This judgment highlights the importance of examining relevant agreements and documents to determine the eligibility of imported services for tax credits. The Tribunal emphasized the need for authorities to conduct thorough assessments based on complete information to make informed decisions on complex tax matters.