2008 (2) TMI 196 - AT - Service Tax

Technical Collaboration fee paid for obtaining technical know-how, technical assistance from the foreign company for setting up plant in India - technical collaboration fee is an intellectual property service (which became taxable only w.e.f. September 2004), not consulting engineer s service - Only a small part of the fee paid by the assessee would even be regarded as consideration for the remaining services so demand on the entire amount of royalty without providing any break-up is incorrect

Summary

Issues:
1. Taxability of technical collaboration fee under service tax.
2. Challenge to penalty imposed under Section 77 of the Finance Act, 1994.

Analysis:
1. The case revolved around the taxability of a technical collaboration fee paid by the appellants to a foreign company for technical know-how and services. The appellants argued that such a fee should not be subject to service tax under "consulting engineer's service" but should be considered as "Intellectual Property Service." They relied on previous tribunal decisions and provisions of the agreement to support their case. The Revenue, however, contended that the fee was for technical assistance falling under consulting engineer's service. The tribunal examined the agreement and found no evidence of technical assistance in engineering disciplines being provided by the foreign company. The tribunal also highlighted that a significant part of the fee was for technical know-how, which is considered an intellectual property service not taxable under service tax laws.

2. The tribunal analyzed the provisions of the technical collaboration agreement, emphasizing that the fee paid was for technical know-how, modifications, and improvements granted under the agreement. The tribunal noted that the Revenue failed to demonstrate that the technical assistance provided fell under the categories specified in the agreement. Citing previous cases, the tribunal concluded that the service in question was more aligned with intellectual property services rather than consulting engineer's service. Additionally, the tribunal criticized the Revenue for demanding service tax on the entire fee without distinguishing the portion attributable to technical know-how transfer, which was impermissible under the law.

In conclusion, the tribunal set aside the impugned order, allowing the appeal in favor of the appellants.