2015 (5) TMI 668 - AT - Service Tax

Scientific and technical consultancy services - Reverse charge mechanism - nature of intellectual property services (IPR) rendered by foreign firms - Held that - The terms of the relevant agreements indicate that these agreements were intended primarily to cover the following transactions, viz., transfer of brand names/trade marks to Cadila against payment of ₹ 70 crores, transfer of know-how for manufacture of bulk drug against payment of ₹ 20 crores and transfer of technical know-how to make tablets (formulations) against payment of ₹ 5 crores. None of these transactions can be conceptually reduced to mere advice, consultancy or scientific/technical assistance. - This rules out the applicability of Andhra Petrochemicals. Moreover, the appellant-company cannot be said to be a science or technology institution or organization. Even medical colleges, hospitals or diagnostic/pathological laboratories have not been recognized by the department as science or technology institutions or organizations vide M.F. (D.R.) Letter dated 9-7-2001 ibid. In the show-cause notice itself, the appellant-company was held out to be manufacturer of excisable goods only. It was not even alleged that it was a science or technology institution or organization. Even assuming that M/s. Kopran Research Laboratories Ltd. are a science or technology organization wholly owned by the appellant-company and that their R&D activities are financially supported by the appellant-company, we are not inclined to deem the latter to be a science or technology institution or organization. The two companies are distinct legal entities and, therefore, the functional character of one cannot be claimed by, nor infused into, the other. Revenue has not alleged and established that the appellant-company provided advice, consultancy or scientific or technical assistance to Cadila in any specific discipline of science or technology. In the result, the argument of the counsel that the service rendered by the appellant-company to Cadila under the relevant agreements cannot constitute scientific or technical consultancy as defined under Section 65 of the Finance Act, 1994 merits acceptance. - Further, in yet another case R.M. Dhariwal (HUF) vs. CCE Pune III - 2014 (1) TMI 409 - CESTAT MUMBAI has laid down the same ratio that transfer of trade name and formulae transferred for a consideration cannot be services which would fall under Scientific or Technical Consultancy Service . - Decided against Revenue.

Issues Involved:
1. Validity of the addendum to the show cause notice.
2. Classification of services under "Scientific and Technical Consultancy Service."
3. Applicability of the definition of "Scientific and Technical Consultancy Service."
4. Limitation period for demand of service tax.
5. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Validity of the Addendum to the Show Cause Notice:
The appellant assessee contested the addendum issued by the revenue authorities, arguing it was incorrect as it was issued after considering the written submissions made by the appellant. The appellant claimed that the revenue was trying to improve its case post the defense raised by the assessee.

2. Classification of Services under "Scientific and Technical Consultancy Service":
The core issue was whether the services rendered by M/s. Rosobornexport of Russia to the appellant assessee could be classified under "Scientific and Technical Consultancy Service" as per Section 65 (60) of the Finance Act, 1994. The appellant argued that the services did not fall under this category, as the agreement was for the transfer of license and technical documentation for the production of fighter aircraft, not for consultancy or technical assistance.

3. Applicability of the Definition of "Scientific and Technical Consultancy Service":
The definition under Section 65 of the Finance Act, 1994, states that "Scientific or technical consultancy" means any advice, consultancy, or scientific or technical assistance rendered by a scientist, technocrat, or any science or technology institution or organization. The Tribunal found that M/s. Rosobornexport, being a joint-stock company and not a science or technology institution, did not meet this definition. The Tribunal referenced the case of Kopran Ltd., which held that transfer of technical know-how does not fall under "scientific or technical consultancy services."

4. Limitation Period for Demand of Service Tax:
The adjudicating authority confirmed the demands within the limitation period but dropped demands beyond it. The revenue appealed, arguing that the appellant did not produce the agreement in time, justifying the extension of the limitation period. The Tribunal, however, did not find sufficient grounds to extend the limitation period and upheld the adjudicating authority's decision to drop demands beyond the limitation period.

5. Imposition of Penalties:
The adjudicating authority did not impose any penalties on the assessee. The Tribunal did not find it necessary to impose penalties, as the primary issue was resolved on the merits of the classification of services.

Conclusion:
The Tribunal concluded that the services provided by M/s. Rosobornexport did not fall under the definition of "Scientific and Technical Consultancy Service" as per Section 65 (60) of the Finance Act, 1994. Consequently, the demand for service tax on these grounds was unsustainable. The appeal filed by the assessee was allowed, and the appeal filed by the revenue was rejected. The Tribunal did not record findings on other submissions due to the resolution of the primary issue on merits.

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