2009 (1) TMI 131 - AT - Service Tax

Permanent transfer of know-how supplementary agreement for task force to recommend economies in the manufacturing activities - contention of revenue is that the supplementary agreements under consideration were not merely for the sale of technical know-how, but they have also provided consulting engineer service in the form of technical advice, consultancy, etc. relationship of service provider and service recipient is absent mere providing staff to another company for marketing and accounting not covered under technical advice or assistance revenue appeal dismissed

Summary

Issues:
Interpretation of agreements for transfer of know-how as consulting engineer services and liability for service tax.

Analysis:
The case involved agreements between the parties for the permanent transfer of know-how, leading to a dispute over whether the transactions should be treated as consulting engineer services liable for service tax. The original adjudicating authority found the agreements to be providing consulting engineer services, imposing penalties and demanding service tax. The Commissioner (Appeals) later set aside this order, leading to the Revenue appealing against it.

The Revenue argued that the agreements involved technical advice and consultancy in addition to know-how transfer, citing specific clauses from the agreements to support their claim. They relied on a tribunal decision to differentiate between transferable know-how and technical assistance, claiming that the respondents provided further assistance post-know-how transfer.

In response, the respondents contended that the agreements were solely for the transfer of know-how without any consultancy involved. They highlighted clauses from the agreements and a Ministry of Finance circular to support their argument that permanent transfer of intellectual property rights does not amount to service. They also cited various judicial pronouncements to bolster their case.

Upon detailed consideration, the tribunal found that the agreements were indeed for the sale of technical know-how only, without any provision for consulting engineer services. They noted that the supplementary agreement aimed at cost reduction in manufacturing, not consultancy, and that staff transfers post-know-how transfer did not constitute technical advice. The tribunal agreed with the respondents' position, emphasizing that the agreements did not involve consulting engineering services. As the Revenue lost on merits, the tribunal did not delve into the issue of limitation.

Ultimately, the tribunal dismissed the Revenue's appeal, concluding that the agreements were solely for the sale of technical know-how and did not amount to the provision of consulting engineer services subject to service tax. The decision was pronounced on 6-1-2009 by the tribunal members.