2005 (7) TMI 101 - AT - Service Tax

Transfer of know-how received with regard to manufacture - appellant contended that transfer of technology and trademark is transfer of property and not rendering of service - second contention of the appellant is that during the period in question the recipient of consultancy service was not liable to pay service tax - liability for paying service tax shifted to recipient only w.e.f. 16-8-2004 appellant s contention is acceptable - appeal of the assessee is allowed

Summary

Issues:
Service tax liability on transfer of technology and trademark under a know-how agreement.

Analysis:
The judgment by the Appellate Tribunal CESTAT, New Delhi involved a case where the appellant, a footwear manufacturer, entered into an agreement with another party for the transfer of know-how related to manufacturing Lee Cooper brand footwear. The agreement also included the transfer of the trademark 'Lee Cooper'. The dispute arose regarding the service tax liability on the royalty payments made under this agreement for the period 1997-98 to February 2002. The revenue claimed a service tax demand of approximately Rs. 18 lakhs based on the argument that the agreement involved the supply of consultancy services, making the appellant liable for service tax at 5 per cent, similar to engineering consultancy services.

The appellant contended that the transfer of technology and trademark should be considered as a transfer of property rather than the rendering of a service. They relied on previous tribunal orders in cases such as Aviat Chemicals (P.) Ltd. v. CCE and Yamaha Motors (I) (P.) Ltd. v. CCE to support their argument. Additionally, the appellant argued that during the relevant period, the recipient of the consultancy service was not responsible for paying the service tax, as per the Service Tax Rules amendment dated 15-8-2002, which clarified that the person liable for paying service tax in the case of a non-resident service provider was the recipient.

After hearing both parties and examining the records, the Tribunal concluded that the appellant's appeal should be allowed. The Tribunal highlighted that the liability for paying service tax shifted to the recipient only from 16-8-2004, which was after the period in question in this case. Therefore, even if the tax was payable during the relevant period, the appellant, as the recipient, was not liable to pay it. The Tribunal also reiterated that the transfer of know-how and trademark did not amount to the rendering of engineering or consultancy services, aligning with its previous decisions in similar cases.

Consequently, the Tribunal allowed the appeal of the appellant with any consequential relief and dismissed the revenue's appeal, as they found no merit in imposing service tax in this situation. Both appeals were decided accordingly, providing clarity on the service tax liability in transactions involving the transfer of technology and trademarks under know-how agreements.