2014 (4) TMI 955 - AT - Service Tax

Demand of service tax - import of services - Technical Know how service - Held that - The service tax is sought to be demanded on the amount being paid by the appellant to BPB, UK in terms of Article 8.2 of their agreement with them. While in terms of the Article 8.1 of the Agreement, the appellant were required to pay a lump sum amount of ₹ 400000 as consideration for technical knowhow provided, within a specified period and the same amount has already been paid, Article 8.2. provides for recurring annual payment @3% of the annual sales turnover for technical services provided by M/s. BPB to the appellant. The technical services being provided are those mentioned in Annexure-II to the agreement, which are expert advice and assistance with identification specification and preparation of linerboard (paper) gypsum and other indigenous raw materials to be used by the appellant in India, the expert advice and assistance during installation, erection and commissioning of the plant and also in the subsequent modifications or addition to the manufacturing plant, expert advice and assistance with the manufacture of the products and jointing compounds and joint filler including occasional supervision and problem solving, expert assistance in marketing of the final products etc. None of these services can be called intellectual property service. demand for the period prior to 18.4.2006 is not sustainable in view of the judgement of Hon ble Bombay High Court in the case of Indian National Ship-owners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Taxability of service tax on the amount paid by the appellant to M/s. BPB Industries, UK for technical services.
2. Jurisdiction of the Commissioner of Central Excise & Service Tax, Rohtak to issue show cause notice and confirm service tax demand against the appellant.
3. Applicability of service tax demand for the period prior to 18.04.2006.

Issue 1: Taxability of service tax on the amount paid for technical services:
The appellant, a manufacturer of Gypsum Board jointing compound, entered into an agreement with M/s. BPB Industries, UK, for technical collaboration. The dispute arose regarding the service tax demand on the amount paid by the appellant to M/s. BPB for technical services. The department viewed this payment as intellectual property service and demanded service tax. However, the Tribunal noted that the payment under Article 8.2 of the agreement was for technical services specified in Annexure-II, such as technical advice, assistance in manufacturing, installation, and marketing, which did not constitute intellectual property service. The Tribunal held that the service tax demand on this amount was not justified as it was not for intellectual property rights service.

Issue 2: Jurisdiction of the Commissioner of Central Excise & Service Tax, Rohtak:
The appellant contested the jurisdiction of the Commissioner of Central Excise & Service Tax, Rohtak, to issue the show cause notice and confirm the service tax demand. They argued that since their registered office was in Mumbai and they had plants in multiple locations, the Commissioner of Rohtak lacked jurisdiction. However, the Tribunal found that the Commissioner had jurisdiction as one of the appellant's plants was located in Jind, within the Commissioner's jurisdiction. Therefore, the Tribunal upheld the jurisdiction of the Commissioner in issuing the show cause notice and confirming the service tax demand.

Issue 3: Applicability of service tax demand for the period prior to 18.04.2006:
The appellant also raised the issue of the applicability of service tax demand for the period before 18.04.2006. They argued that prior to this date, service tax could not be charged from a service recipient in India for services received from an offshore service provider. The Tribunal referred to the judgment of the Bombay High Court and held that the demand for the period before 18.04.2006 was not sustainable. The Tribunal found that during this period, service tax could not be levied on the appellant as a service recipient for the services received from an offshore service provider. Therefore, the Tribunal set aside the demand for this period.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the service tax demand on the amount paid for technical services was unjustified as it did not constitute intellectual property service. The Tribunal also upheld the jurisdiction of the Commissioner of Central Excise & Service Tax, Rohtak, but found the demand for the period prior to 18.04.2006 to be unsustainable based on legal precedents. As a result, the impugned order was set aside, and the appeal was allowed in favor of the appellant.