2008 (5) TMI 95 - AT - Service Tax

Consulting Engineer - appellant had received technical know-how, technical knowledge, information and drawings for manufacturing purpose in many decisions tribunal has hold that royalty payments in exchange for technical know-how/technical knowledge etc. was not exigible to service tax under the category of Consulting Engineer s Service - prayer for waiver of penalty and demand is accepted

Summary

Issues:
1. Demand of service tax on royalty payment for technical know-how.
2. Imposition of penalty under sections 76, 77, and 78.
3. Application for waiver of pre-deposit and stay.

Analysis:
1. The impugned order demanded payment of service tax on royalty received by the appellant for technical know-how under a manufacturing licensing agreement. The Commissioner imposed penalties under sections 76, 77, and 78. The original authority had initially dropped the service tax proposal following a precedent set by the Tribunal in Navinon Ltd. v. CCE. The case revolved around the receipt of technical knowledge, information, and drawings for manufacturing products from a UK-based company. The appellant argued that royalty payments for technical know-how were not subject to service tax under the category of 'Consulting Engineer's Service'.

2. The appellant sought waiver of pre-deposit and stay, citing various Tribunal decisions that supported their stance on royalty payments not being liable to service tax. The appellant's counsel referenced cases like Shore to Shore MIS (P.) Ltd. v. CCE and Turbo Energy Ltd. v. CCE where similar demands for service tax were vacated. The Judicial Departmental Representative (JDR) relied on different Tribunal decisions to support the imposition of service tax. However, the Member (T) found that the issue had already been settled in favor of the assessee based on previous case law. The Member (T) concluded that the appellant had made a prima facie case against the penalty and demand, leading to a waiver of pre-deposit and stay of recovery until the appeal's disposal.

3. The Tribunal's decision highlighted the importance of case law in determining the liability of service tax on royalty payments for technical know-how. The judgment emphasized the need for a clear distinction between cases involving the transfer of technical knowledge and cases where technical assistance was provided. The waiver of pre-deposit and stay of recovery was granted based on the appellant's successful establishment of a prima facie case against the penalty and demand. The ruling provided clarity on the applicability of service tax in situations involving royalty payments for technical expertise, ensuring consistency in tax treatment for similar transactions.