2009 (1) TMI 122 - AT - Service Tax

Agreement with foreign service provider for transfer of know-how and training of staff of service recipient - Intellectual property service vis- -vis Consulting engineer services - if the transferor of intellectual property deploys its staff to train its client s personnel in applying the know-how that is incidental to the main object of the agreement namely transfer of technical know-how; the service rendered remains IP Service - impugned services are appropriately classifiable under intellectual property service and not under consulting engineer s service appeal of assessee allowed

Summary

Issues:
1. Taxability of services provided by a foreign entity to an Indian company under the category of Engineering Consultancy or Intellectual Property Service.
2. Applicability of service tax on technical know-how fees paid by the Indian company to the foreign entity.
3. Interpretation of the relevant agreement between the parties to determine the nature of services provided.
4. Consideration of case laws to establish the correct classification of services for taxation purposes.

Analysis:

1. The case involved a dispute regarding the taxability of services provided by a foreign entity to an Indian company, specifically whether the services fell under Engineering Consultancy or Intellectual Property Service. The agreement between the parties outlined the transfer of technical know-how and assistance for manufacturing automotive chains. The appellate tribunal determined that the services provided were Intellectual Property Service, not Engineering Consultancy, as the primary objective was the transfer of technical know-how for manufacturing purposes. The tribunal highlighted that the introduction of a new tax category for Intellectual Property Service did not imply taxation under the pre-existing Engineering Consultancy category.

2. The issue of service tax on technical know-how fees paid by the Indian company was also addressed. The tribunal clarified that the technical fees paid over a period were compensation for the transfer of technical know-how, which constituted Intellectual Property Service. The tribunal emphasized that the payment received in exchange for technical know-how was not liable to be taxed under the category of Engineering Consultancy, as established in previous case laws.

3. The interpretation of the agreement between the parties played a crucial role in determining the nature of services provided. The tribunal analyzed the provisions of the agreement, which included the transfer of technology, detailed design specifications, training of personnel, and regular visits for supervision. Based on the agreement's terms and the activities undertaken by the foreign entity, the tribunal concluded that the services rendered were primarily related to intellectual property transfer for manufacturing automotive chains.

4. The tribunal extensively considered relevant case laws, such as Motherson Automotive Tech & Engg. v. CCE, Chennai and Same Engines India (P) Ltd. v. CCE, Chennai, to support the classification of services as Intellectual Property Service. The tribunal also cited Diebold Systems (P) Ltd. v. CST, Chennai to emphasize that the introduction of a new taxable service category did not imply taxation under pre-existing categories. The tribunal's analysis of these case laws reinforced the decision to classify the services under Intellectual Property Service for taxation purposes.

In conclusion, the appellate tribunal set aside the impugned order and allowed the appeal, ruling in favor of the appellant based on the classification of services as Intellectual Property Service rather than Engineering Consultancy. The tribunal's detailed analysis of the agreement, case laws, and tax implications provided a comprehensive understanding of the issues involved in the judgment.