2004 (10) TMI 16 - AT - Service Tax

Service Tax Intellectual Property Services Transfer of technical know-how Stay/Dispensation of pre-deposit of service tax

Summary

Issues:
1. Classification of services rendered by appellants under Service Tax law.
2. Interpretation of the definition of "Technology" under the Research and Development Cess Act, 1986.
3. Consideration of the applicability of Finance Act, 2004 amendments to the case.
4. Assessment of the impact of notification No. 18/2002-S.T. on the classification of technical know-how transfer services.
5. Decision on the stay application and waiver of pre-deposit amounts.

Issue 1 - Classification of services rendered by appellants:
The appellants, based in Japan, transferred technical know-how to their Indian counterpart under a license agreement. The authorities categorized this transfer as "Consulting Engineering Services," while the appellants argued that it falls under the definition of "Technology" as per the Research and Development Cess Act, 1986. The Counsel contended that the authorities did not consider all the grounds raised in the appeal, and the order lacked a proper analysis. Reference was made to a Mumbai Bench judgment stating that technical know-how transfer does not fall under consulting engineer services. The Counsel also highlighted the introduction of category 55B in the Finance Act, 2004, covering "intellectual property services," which aligns with the nature of the transfer in this case.

Issue 2 - Interpretation of the definition of "Technology":
The Research and Development Cess Act, 1986 defines "Technology" as any special or technical knowledge required by an industrial concern under foreign collaboration, including designs, drawings, publications, and technical personnel. The appellants contended that the transfer of technical know-how under their license agreement falls within this definition. The Tribunal agreed that the transfer prima facie falls under the category of intellectual property as defined in the amended Finance Act, rather than consulting engineer services as suggested by the authorities.

Issue 3 - Applicability of Finance Act, 2004 amendments:
The Tribunal noted that the introduction of category 55B in the Finance Act, 2004, covering intellectual property services, aligns with the nature of the services provided by the appellants. The Tribunal considered the amended provisions and found that the transfer of intellectual property rights under the license agreement is more appropriately classified under this new category rather than consulting engineer services.

Issue 4 - Impact of notification No. 18/2002-S.T.:
The authorities referred to notification No. 18/2002-S.T., which clarified that transfer of technical know-how is covered under consulting engineer services. However, the Tribunal held that this notification would have prospective effect and does not apply to the period in question (November 1998 to December 2000). Therefore, the Tribunal concluded that the appellants have a strong prima facie case in their favor, granting them full waiver of the pre-deposit amounts and staying the recovery until the appeal's disposal.

Issue 5 - Decision on the stay application and waiver:
The Tribunal allowed the stay application unconditionally, providing full waiver of the pre-deposit amounts and staying the recovery until the appeal's final disposition. Citing a Larger Bench judgment, the Tribunal barred the Revenue from recovering the amounts during this period. Due to the substantial amounts involved, the Tribunal accepted the prayer for an early hearing and scheduled the appeal for March 7, 2005, while instructing the Registry to link similar appeals for consolidated hearing.