2017 (8) TMI 1054 - AT - Service Tax

Classification of services - the appellants had entered into agreement with M/s. General Motors and as per the agreement, they have to pay royalty @ 3% on local sales and 7.5% on export sales of the equipment/parts manufactured and sold - The department is of the view that such payment is royalty charges paid for technical know-how and would fall under IPR services - reverse charge mechanism - whether the service is to be classified under Intellectual Property Right Services or otherwise? - Held that - reliance placed in the case of M/s. Saint-Gobain Gyproc India Limited Versus CCE, Rohtak 2014 (4) TMI 955 - CESTAT NEW DELHI , where on similar issue it was held that None of these services can be called intellectual property service - the services would not fall under IPR services. The impugned order is modified to the extent of only setting aside the classification of the service without disturbing the order passed setting aside the demand - appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Classification of services under Intellectual Property Right Services for royalty payments made to a foreign company before the introduction of Section 66A in the Finance Act, 1994.

Analysis:
1. The case involved the appellants, manufacturers of Power Shift Transaction and Parts under technical collaboration with a foreign company. The dispute arose when the department claimed that royalty payments made to the foreign company would attract service tax under the category of 'Intellectual Property Right Services'. The original authority confirmed the demand, but the Commissioner (Appeals) set aside the demand due to the period being before the introduction of Section 66A in the Finance Act, 1994. The appellant challenged the classification of their activities under Intellectual Property services.

2. The appellant's counsel argued that the royalty payments were not for Intellectual Property services but for Technical Assistance based on the agreement clauses with the foreign company. The agreement specified payments for technical information and technical assistance, excluding any sale, transfer, or assignment of patents. Referring to a relevant case, the counsel contended that the royalty paid did not fall under Intellectual Property services. The appellant's position was supported by the decision in Saint-Gobain Gyproc India Ltd. Vs. CCE Rohtak.

3. The respondent, on the other hand, reiterated that the payments reflected in the financial statements were for the technical know-how of the products, falling under the category of Intellectual Property services. The respondent argued that the payments were made for technical assistance as per the agreement clauses, justifying the classification under IPR services.

4. Upon careful consideration of the agreement clauses and arguments presented, the Tribunal analyzed the nature of payments made by the appellants to the foreign company. The agreement detailed payments for technical information, technical assistance, and royalties based on product sales. The Tribunal compared the case with a similar precedent involving technical services and intellectual property services. Following judicial discipline, the Tribunal held that the services provided did not fall under Intellectual Property services, aligning with the precedent cited.

5. Consequently, the Tribunal modified the impugned order, setting aside the classification of services under Intellectual Property Right Services without disturbing the order that had previously set aside the demand. The appeal was allowed in favor of the appellant based on the analysis and findings regarding the nature of payments made to the foreign company.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's decision based on the interpretation of the agreement clauses and relevant legal precedents.