2014 (10) TMI 343 - AT - Service Tax

Classification of service - Intellectual property service or Consulting Engineer s Service - Royalties paid to appellants - Held that - From a perusal of the agreement, it is seen that the technical know-how supplied by the appellant consisted of the patents, secret information, licence fee for use of trade mark and so on. These fall under the category of Intellectual Property Rights which came under the tax net only in 2004. The period in dispute is 1999-2002 which is well before the levy of service tax on Intellectual Property Rights. Therefore, the appellant is right in contending that the demands are not sustainable in law as the services provided do not come under the category of Consulting Engineer s Service - Stay granted.

Summary

Issues:
Interpretation of 'Consulting Engineer's Service' for service tax liability on technical know-how supply.

Analysis:
The appeal involved a dispute regarding the liability of Service Tax on royalties paid for technical know-how supplied by an appellant to another entity. The appellant, a corporation from the USA, had an agreement with an Indian company for the supply of technical know-how related to manufacturing products. The department contended that this activity fell under 'Consulting Engineer's Service' and issued a show cause notice demanding service tax for the period between 1999-2002. The appellant challenged the demand, leading to a confirmation of the demands with interest and penalties by the lower appellate authority. The appellant then appealed to the tribunal.

The appellant argued that the supply of technical know-how did not fall under 'Consulting Engineer's Service,' citing precedents like Navinon Ltd. v. Commissioner of Central Excise and Yamaha Motors (India) Pvt. Ltd. v. Commissioner of Central Excise. The Revenue, represented by the Superintendent (AR), conceded the issue in light of the tribunal's decisions referenced by the appellant.

Upon reviewing the agreement, the tribunal found that the technical know-how provided included patents, secret information, and license fees for trademarks, constituting Intellectual Property Rights. These aspects were brought under the tax net only in 2004, while the disputed period was between 1999-2002. Therefore, the tribunal held that the demands were not sustainable in law as the services provided did not fall under 'Consulting Engineer's Service.'

Consequently, the tribunal allowed the appeal, directing the return of the pre-deposit made by the appellant without further delay.