2015 (1) TMI 1052 - AT - Service Tax

Intellectual property rights service - Payment of royalty on account of technical know-how charges - Bar of limitation - Held that - Technology Transfer Agreement read with Share Purchase Agreement clearly points to the provision of two services by Rochem AG Switzerland, namely, the service of providing technology transfer and the service of providing intellectual property right transfer. The Commissioner is right in holding that the Share Purchase Agreement is inextricably linked to the Technology Transfer Agreement by virtue of Article 4 Non-competition. Further, Article 4 also recognizes that appellant have been using the trademark and logo Rochem . However, the Commissioner failed to analyze the Agreements in detail and came to a hasty conclusion that the entire amount of royalty is towards transfer of Intellectual property Right. - Only rights which are registered with the trademark/patent authorities are considered as Intellectual Property Right. The Commissioner has failed to go into these aspects in detail and has clubbed the entire service as Intellectual Property Right service. Charge of service tax is under Section 66 but the appellant being the receiver is liable to pay under Section 66A. The Commissioner s reasoning is not correct and is rejected. The appellants are eligible to benefit from notification No. 17/2004. - Commissioner has not analyzed the case on merits. He has not justified that the royalty amount is paid entirely for import of Intellectual Property Right services. He has wrongly disallowed the benefit of notification No. 17/2004. Section 78 provides that where the service tax has not been paid because of fraud, collusion, willful misstatement or suppression of facts or contravention of any of the provisions with intent to evade payment of duty, the liability of penalty will be equal to the amount of service tax not paid. We fail to understand how Commissioner has come to the conclusion that the ingredients of both the sections are different. If the reason for waiving penalty under Section 78 in terms of the provisions of Section 80 are that there was confusion about the scope of leviability on service receivers under reverse charge mechanism, then, it is the same confusion because of which the appellants had not declared the fact of receiving service by way of import. In fact, the appellants case is even stronger because it has not even been established convincingly by the Commissioner that the service receive is entirely covered under the category of Intellectual Property Right Services. - Following decision of CCE Vs. Indian Institute of Chemical Technology 2012 (9) TMI 236 - ANDHRA PRADESH HIGH COURT - limitation period will apply and the demand is time barred - Decided in favour of assessee.

Summary

Issues Involved:
1. Nature of service provided by Rochem AG Switzerland.
2. Applicability of extended time period under Section 73(1).
3. Revenue neutrality.
4. Eligibility for exemption under Notification No. 17/2004.
5. Limitation period for demand.

Detailed Analysis:

1. Nature of Service Provided by Rochem AG Switzerland:
The primary issue was whether the service provided by Rochem AG Switzerland falls under the category of "Intellectual Property Right Service" as defined under Section 65(55b) of the Finance Act, 1994. The appellant argued that the technology transfer and technical know-how do not constitute Intellectual Property Right Service. The Tribunal examined the Technology Transfer and License Agreement, which included various technical information necessary for assembly, testing, installation, commissioning, etc., and concluded that the transfer of technology is distinct from the transfer of Intellectual Property Rights. However, the agreement also mentioned the right to use the trade name, indicating a provision of two services: technology transfer and intellectual property right transfer. The Commissioner erred in concluding that the entire royalty amount was for the transfer of Intellectual Property Rights without detailed analysis.

2. Applicability of Extended Time Period Under Section 73(1):
The Tribunal examined whether the extended period of five years under Section 73(1) was applicable. The Commissioner invoked the extended period due to non-declaration of royalty payments. However, the Tribunal noted that the issue of service tax on reverse charge basis was under litigation, which was a reasonable cause for non-payment. The Tribunal found the Commissioner's reasoning flawed, as the confusion about the scope of leviability under reverse charge mechanism should apply equally to the invocation of extended period and waiver of penalties under Sections 76, 77, and 78.

3. Revenue Neutrality:
The appellant argued that the situation was revenue neutral since they had paid substantial excise duty in cash from the PLA account during the disputed period. The Tribunal agreed, citing Supreme Court judgments that support the principle of revenue neutrality, indicating no loss to the Revenue.

4. Eligibility for Exemption Under Notification No. 17/2004:
The appellant contended that they were entitled to exemption under Notification No. 17/2004 for the cess paid towards the import of technology. The Commissioner denied this benefit, reasoning that the notification applied only to Section 66 and not to Section 66A. The Tribunal rejected this reasoning, interpreting that the notification's intention was to exempt service tax equivalent to the cess paid. The Tribunal concluded that the appellant was eligible for the exemption.

5. Limitation Period for Demand:
The Tribunal found that the demand was restricted to the period 2007-08, and the show cause notice was issued on 1.2.2010, invoking the extended period. The Tribunal held that the demand was time-barred, as the Commissioner failed to establish fraud, collusion, willful misstatement, or suppression of facts. The Tribunal cited the Hon'ble High Court of Andhra Pradesh's decision, which supported the view that bona fide doubt about tax liability does not justify invoking the extended period.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal on the grounds of limitation and flawed analysis by the Commissioner. The demand was deemed time-barred, and the appellant was found eligible for the exemption under Notification No. 17/2004.