2013 (2) TMI 460 - Commissioner - Service Tax

Intellectual Property Service Whether the assessee is liable to pay service tax on the royalty charges paid by them to their foreign collaborator during the disputed period under the category Intellectual Property Rights Assessee is manufacturers of Ceramic Fibre Bulk, Ceramic Fibre Product sentered Entered into know-how agreement dated 1-2-1995 and pays royalty at 1.3% of the salesof the Ceramic Refractory Fibre manufactured using the Spun Fibre process for which the know-how was importe Not registered with the Department nor paid the Service tax on the royalty under Intellectual Property Service Held that - The continuous payment of royalty by the appellant proves that the transfer of technical know-how is not on one time affair and the up-gradation of the same is taking place for which the royalty charges are being paid during the disputed period. Assessee is liable to pay Service tax under IPR Service Against the assessee. Further Section 66A was inserted by Finance Act,2006 w.e.f. 18-04-2006 because of the enactment of Section 66A, a person who is resident in India or business in India becomes liable to be levied service tax when he receives services outside India from a person who is non-resident or is from outside India Therefore assessee is liable to pay Service tax along with interest on Royalty payments w.e.f. 18-4-2006 Against the assessee.

Summary

Issues:
- Liability to pay service tax on royalty charges paid to foreign collaborator under "Intellectual Property Rights" service
- Applicability of service tax from a specific date
- Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994

Analysis:
1. Liability to pay service tax on royalty charges:
The appellant contended that due to a permanent transfer of technology, the levy of service tax under "Intellectual Property Right Services" should not apply. They argued that as there was a sale and not a service, no service tax should be levied. However, the records showed that the appellant had been consistently paying royalty since 1-2-1995, while the tax on Intellectual Property Right Service was introduced later. The continuous payment of royalty indicated ongoing technical know-how transfer, justifying the liability to pay service tax under IPR Service.

2. Applicability of service tax from a specific date:
The appellant claimed that if liable, they should pay service tax from 18-4-2006. Citing a Delhi High Court judgment, it was noted that the liability for service tax could be limited to a specific period. The Bombay High Court's decision emphasized that the enactment of Section 66A in 2006 authorized the levy of service tax on recipients of taxable services from abroad. Following these precedents, it was established that the appellant was liable to pay service tax on royalty charges from 18-4-2006.

3. Imposition of penalties under Sections 76, 77, and 78:
The Lower Adjudicating Authority imposed penalties, but the absence of discussions on an intention to evade payment of duty rendered penalty under Section 78 inapplicable. Moreover, since there was no evidence of the appellant collecting or paying service tax to the provider, penalty under Section 76 was deemed not applicable. However, the penalty imposed under Section 77 was found to be sustainable based on the circumstances. Consequently, the appellant was held liable to pay service tax along with interest on royalty payments from 18-4-2006, and the Lower Adjudicating Authority's order was modified accordingly, disposing of the appeal on these terms.