2015 (1) TMI 1143 - AT - Service Tax

Taxability of Royalty - transfer of technology for manufacture of ball bearings - Consulting Engineer Service - Held that - Respondent is a company incorporated in and operating from USA and has no branch office or any business establishment whatsoever in India. There is also no dispute that the service provided is transfer of technology for manufacture of ball bearings under licence agreement with M/s. NEI Ltd. Jaipur against payment of royalty. The service tax is sought to be recovered on the amount of royalty received by the respondent from M/s. NEI during the period 2003-04. First of all in our view the service provided by the respondent to M/s. NEI is not the service of Consulting Engineer but is Intellectual Property service which became taxable w.e.f. 10-9-2004 under Section 65(105)(zzr) and therefore during the period of dispute the service provided by the respondent would not attract any service tax. Such receipt of a taxable service by a person in India from a foreign service provider became taxable by making the service recipient as the person liable to pay the service tax with effect from 18-4-2006 by introducing Section 66A of the Finance Act 1994 and hence during the period of dispute prior to this date the service tax could not be demanded even from the service recipient. We also find that the findings of the Commissioner (Appeals) that no service tax can be recovered from the respondent a company incorporated in USA and operating from USA and not having any branch or establishment in India are based on the judgments of the Tribunal in the cases of Relax Safety Industries & Others (2002 (4) TMI 143 - CEGAT MUMBAI) and Philcorp Pte. Ltd. (2007 (3) TMI 93 - CESTAT MUMBAI) wherein it was held that the service tax demand was not applicable to a person or company located outside India having no business or establishment in India. In view of this we find no illegality or impropriety in the impugned order. - Decided against Revenue.

Summary

Issues:
1. Liability of a foreign company to pay service tax in India for providing technical know-how.
2. Applicability of service tax on a non-resident company without any establishment in India.
3. Interpretation of service tax laws regarding transfer of technology under a license agreement.

Analysis:
1. The case involved a foreign company incorporated in the USA providing technical know-how to an Indian company under a license agreement. The dispute arose when the Indian tax department demanded service tax from the foreign company for the services provided. The department argued that the service provided fell under the category of Consulting Engineers, making it taxable under the Finance Act, 1994. The Addl. Commissioner upheld the tax demand, imposing penalties as well. However, the Commissioner (Appeals) set aside this decision, citing precedents where it was held that non-resident companies without a presence in India are not liable to pay service tax.

2. The Tribunal analyzed the nature of the service provided by the foreign company and concluded that it was not Consulting Engineer service but Intellectual Property service. The Tribunal referenced previous judgments to support this interpretation. It emphasized that during the period of dispute, the service provided did not attract any service tax. Additionally, the Tribunal agreed with the Commissioner (Appeals) that a foreign company without any establishment in India cannot be taxed for services provided from abroad. The introduction of Section 66A of the Finance Act, 1994, shifted the liability to pay service tax to the service recipient, further supporting the decision that no tax could be demanded from the foreign company in this case.

3. The Tribunal's decision was based on the understanding that the service tax laws do not apply to foreign companies located outside India with no business presence in the country. The judgments in cases like Relax Safety Industries & Others and Philcorp Pte. Ltd. were crucial in establishing that service tax demands are not applicable to entities operating outside India without any establishment in the country. The Tribunal found no legal basis to challenge the Commissioner (Appeals)'s decision and dismissed the Revenue's appeal, affirming that no service tax could be recovered from the foreign company in this scenario.