2008 (7) TMI 60 - AT - Service Tax

Consulting Engineer Services - transfer of technical know-how from foreign company recipient made liable to pay tax only w.e.f. 18-4-2006 - contention of the appellants that payment of royalty is not subject to levy of service tax, is acceptable - right to use trade mark is a transaction in property and not consultancy or advice and that no consultancy or advice is involved in lease or sale of trade mark as it is a transaction in intangible property appeal is allowed

Summary

Issues:
Service Tax on "Intellectual Property Service" including royalty payments to foreign consultants.

Analysis:
The judgment involves two appeals concerning the taxation of royalty payments made by the appellants to a foreign consultant for technical know-how under the category of "Intellectual Property Service." The authorities considered technical know-how as an intangible property covered under the definition of Intellectual Property Right in the Finance Act. The appellants argued that the Finance Act's provisions did not apply to royalty payments to a foreign consultant and that the demand should only be applicable from a certain date. The Tribunal examined previous judgments, notably the Mumbai Bench's decision in the case of Navinon Ltd. and Bajaj Auto Ltd., which favored the appellants. The Mumbai Bench held that the appellants were not liable to pay service tax as consulting engineers for such payments made to a foreign company. The Tribunal analyzed the agreements and concluded that the royalty payments were not for services provided but for the use of technology and know-how, exempting the appellants from service tax liability. Additionally, the Tribunal highlighted that the provisions for withholding tax under the Income-tax Act did not extend to service tax, further supporting the appellants' position.

The Tribunal also addressed the issue of service tax liability concerning the second proviso to rule 6 of the Service Tax Rules. It clarified that the provision differentiated between the service provider, service receiver, and the representative/client of the service provider. In this case, the appellants were the service receiver, and the rule did not apply to them. The Tribunal emphasized that the amendment to the Service Tax Rules regarding payment of service tax by the service receiver in India for services provided to a person outside India could only have prospective effect and not be applied retrospectively. Therefore, the appellants were not held liable for payment of service tax based on this provision. Moreover, the Tribunal agreed with the appellants' argument that royalty payments were not subject to service tax, citing a previous order that clarified the nature of transactions involving intangible property like trade marks.

In conclusion, the Tribunal found that the judgments in the cited cases were applicable to the present situation, leading to the setting aside of the impugned orders and allowing the appeals with consequential relief. The detailed analysis of the agreements, legal provisions, and precedents formed the basis for the Tribunal's decision in favor of the appellants, absolving them of the service tax liability on royalty payments to the foreign consultant for technical know-how.