2009 (2) TMI 34 - AT - Service Tax

Joint venture - consulting engineering service - primary object is sharing of know how to participate in a joint venture revenue not proved that Company shall leave India after rendering consulting engineering service without participation in joint venture - Revenue not proved that concern have qualified engineers sharing of knowledge shall not be called as consulting engineering service when expertise acquired by a concern is also used for its own benefit along with others

Summary

Issues:
Challenge to order of adjudication under Finance Act 1994 for provision of consulting Engineering Service.

Analysis:
The appellants contested the order of adjudication, arguing that the proceeding commenced with an audit objection related to manufacturing lubricating oils with technical advice from NYCO for a joint venture. They emphasized that the purpose of the agreement was to grant exclusive authority for manufacturing goods, not for providing engineering consultancy services. The appellants highlighted that the agreement focused on sharing know-how for mutual benefit and joint venture operation, not on engineering consultancy. They also pointed out that the Revenue failed to prove that NYCO was a consulting engineering firm with qualified engineers, as required by law.

The joint venture company, Avi Oil, denied receiving any consulting engineering service from NYCO, asserting that the consideration paid was not for such services but for business operations under the joint venture agreement. The Revenue's argument that providing technology equated to engineering consultancy service was rebutted by the appellants, who stressed that the joint venture aimed at mutual business benefits, including royalty and dividends, rather than engineering consultancy services.

The Revenue's defense relied on the premise that providing technical knowledge constituted engineering consultancy service, but the Tribunal found insufficient evidence to support this claim. The Tribunal noted that the primary objective of the joint venture was knowledge sharing for mutual business benefits, not the provision of engineering consultancy services. The Revenue failed to establish that NYCO operated as a consulting engineering firm or provided such services globally, leading to the dismissal of the charges against the appellants.

In the final ruling, the Tribunal concluded that the show cause notice was misconceived, as the agreement between the parties focused on knowledge sharing for joint venture operations rather than consulting engineering services. The demands raised by the order of adjudication were annulled, as the Revenue did not meet the burden of proving the provision of engineering services by NYCO, thus ruling in favor of the appellants.