2008 (6) TMI 32 - AT - Service Tax

Appellants have received technical know-how, in terms of Collaboration Agreement with M/s. Mundipharma it is not an agreement for permanent transfer of technology - but appellant have acquired only right to use the know-how, for which annual payment of royalty is made - prima facie appears to be covered by the definition of Intellectual property rights service - revenue, prima facie, has a strong case Stay not granted completely

Issues:
Waiver under section 35F of the Central Excise Act, 1944 for pre-deposit of service tax and penalties confirmed by the impugned order, confirmation of service tax demand, imposition of penalties, liability for service tax on royalty payments for Intellectual Property rights, applicability of service tax provisions, invocation of extended period, adjustment of Research & Development cess, limitation period for demand, and the nature of agreement for the transfer of technology.

Analysis:

1. Waiver under Section 35F:
The appellant sought a waiver under section 35F of the Central Excise Act, 1944 for pre-deposit of service tax and penalties. The Commissioner had confirmed the service tax demand amounting to Rs. 44,47,045 against the appellant under the 1st proviso to section 73 of the Finance Act, 1994, along with penalties under various sections. The tribunal considered the arguments presented by both sides and directed the appellant to deposit an amount of Rupees Eleven Lakhs within a specified period, failing which the pre-deposit of the remaining amount of service tax and penalty would be waived.

2. Confirmation of Service Tax Demand and Penalties:
The Commissioner confirmed the service tax demand against the appellant for receiving taxable services of Intellectual Property rights from M/s. Mundipharma, Switzerland. Penalties were imposed under sections 76, 77, and 78 of the Finance Act, 1994. The appellant contested the demand, arguing that the transaction could not be taxed as Intellectual Property Rights (IPR) and that the demand had not been computed correctly, citing the adjustment of Research & Development cess paid by them.

3. Liability for Service Tax on Royalty Payments:
The crux of the dispute revolved around the liability of the appellant to pay service tax on royalty payments made to M/s. Mundipharma for the use of technical know-how. The appellant argued that the transaction did not fall under the definition of Intellectual Property Rights as per the Finance Act, 1994, and that there was no specific law covering know-how as an intellectual property. They also contended that the extended period was wrongly invoked as there was no suppression of facts.

4. Applicability of Service Tax Provisions:
The Departmental Representative argued that the service being received by the appellant from M/s. Mundipharma was an Intellectual Property Rights service liable to service tax, as the appellant had acquired the right to use technical know-how developed by the service provider. The longer limitation period of five years was invoked, and the liability to pay service tax on offshore services was emphasized.

5. Invocation of Extended Period and Adjustment of Cess:
The appellant challenged the invocation of the extended period for demand, arguing that a substantial portion of the demand was time-barred. They also claimed that the demand had not been correctly computed, as the Research & Development cess paid should have been adjusted against the service tax liability.

6. Nature of Agreement for Transfer of Technology:
The tribunal analyzed the agreement between the parties and concluded that it was not a permanent transfer of technology but an agreement granting the appellant the right to use technical know-how for manufacturing medicines, for which royalty payments were made. The tribunal found that the service received by the appellant prima facie fell under the definition of "Intellectual Property Rights" service as per the Act, although the appellant had a strong case regarding the limitation period.

In conclusion, the tribunal directed the appellant to make a specified deposit, considering the arguments presented by both parties and the nature of the agreement for the transfer of technology. The decision balanced the prima facie case of the revenue with the appellant's contentions regarding the applicability of service tax provisions and the limitation period for the demand.

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