2014 (3) TMI 265 - AT - Service Tax

Classification of service - Consulting Engineer s Service - supply of know-how by way of patents, trade secrets, processes, etc. - Held that - Consulting Engineer s Service relates to rendering of advice, consultancy or technical assistance in any branch of engineering to a client by a consulting engineer or an engineering firm. The said service does not, in any way, relate to supply of technical know-how which the respondent has undertaken in the present case. They have supplied to the client in India know-how by way of patents, trade secrets, processes, etc. so that the recipient in India can undertake manufacture of licensed products. In consideration thereof, royalties/licence fees had been paid by the recipient to the service provider. This activity, by no stretch of imagination, can be considered as coming within the purview of Consulting Engineer s Service - activities undertaken by the respondent in the case is not exigible to service tax under the category of Consulting Engineer s Service - Decided against Revenue.

Summary

Issues:
Classification of service under 'Consulting Engineer's Service' for technical know-how agreement.

Analysis:
The appeal was filed by the Revenue against the Order-in-Appeal passed by the Commissioner of Central Excise (Appeals) regarding the classification of service provided under a technical know-how agreement. The respondent, a foreign service provider, entered into an agreement with an Indian entity for the supply of technical know-how and licensing rights. The Revenue contended that the service falls under 'Consulting Engineer's Service' and issued a show cause notice demanding Service Tax. The lower appellate authority, relying on precedents, allowed the appeal, stating that the service does not fall under the said category.

In the grounds of appeal, the Revenue argued that the technical know-how provided constituted advice and technical assistance, making it liable for Service Tax under 'Consulting Engineer's Service'. The Revenue highlighted an ongoing appeal before the High Court regarding a similar case. The Additional Commissioner reiterated the grounds of appeal during the proceedings.

The respondent's counsel argued that the transaction involved the supply of technical know-how, including patents and trade secrets, and did not constitute advice or consultancy. Citing precedents, the counsel contended that the transaction did not attract 'Consulting Engineer's Service'. The respondent prayed for the dismissal of the Revenue's appeal.

Upon considering the submissions, the Tribunal clarified that 'Consulting Engineer's Service' pertains to advice, consultancy, or technical assistance in engineering, which was not the case in the present matter involving the supply of technical know-how. The Tribunal referenced previous decisions affirming that the transfer of technical know-how does not fall under 'Consulting Engineer's Service'. As the activities undertaken did not align with the criteria for the said service, the Tribunal dismissed the Revenue's appeal, finding no merit in their arguments.

Therefore, the Tribunal concluded that the service provided under the technical know-how agreement was not subject to Service Tax under the category of 'Consulting Engineer's Service', based on the nature of the transaction involving the supply of technical know-how rather than consultancy services.