2017 (11) TMI 288 - AT - Service Tax

Intellectual property rights service - scope of service - failure to pay service tax on the provision of technical know-how - time limitation - Held that - The appellants have relied on the decision of the Tribunal in the case of Mormugao Port Trust Versus Commissioner of Customs Central Excise & Service Tax Goa- (Vice-Versa) 2016 (11) TMI 520 - CESTAT MUMBAI to assert that any payment made by a joint venture to participating company cannot be treated as consideration for the service. It is seen that the said decision was passed wherein the appellants had clearly claimed that the royalty earned was not a consideration towards renting of immovable property but it was the share of Revenue from services which were jointly rendered by the assesee and the joint venture - in the instant case there is no claim to the effect on royalty paid is the share of profit from the joint venture to Vemmar SRL Italy. The appellant company has specified shares of each of the participates in the joint venture in the ratio of 51% 35% and 14% respectively. Any share of the profit if distributed has to go to each of the partner in the ratio of their shares. In the instant case Vemmar SRL Italy is receiving the said amount. Thus the payment made to Vemmar SRL Itay cannot be considered as share of its profit of the joint venture. Thus the facts are different in the instant case and therefore the decision of the Tribunal in the case of Mormugoa Port Trust (supra) cannot be applied to the instant case. The legal provisions defining the nature and scope of taxable service namely intellectual Property Right & Intellectual Property Service are defined under clauses (55a) and (55b) of Section 65 of Chapter V of the Finance Act 1994. The Intellectual Property Right means any right to intangible property namely trademarks designs patents or any other similar intangible property under any law for the time being in force but does not include copyright. In the present case I find that the services received by the noticee includes Product &Process Technology required for manufacture of helmets. The JVA allows transfer of services on temporary basis and those services appears to be provided by a person who has established a business or has a fixed establishment from which the service is provided and his permanent address or usual place of residence is outside India. Under these facts I hold that the services received by the notice are falling under the category of taxable service. Thus this taxable service is to be treated as if the recipient had himself provided the service in India. Extended period of limitation - Held that - the show-cause notice has been issued within the period of five years prescribed under the clause pertaining to extended period of limitation. The date of knowledge of department has no relevance if the extended period has been invoked on the grounds mentioned under Section 73 of the Finance Act. Revenue neutrality - Held that - availability of credit to the appellant of such duty paid has not been examined by the impugned order. We are of the view that the said issue is an important issue which needs to be examined before any findings on invocation extended period of limitation are given. The revenue neutrality has an implication on the invocation of extended period of limitation. Penalties - invocation of section 80 - Held that - the said issue also needs to be decided after examining the issue of revenue neutrality. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Confirmation of demand of service tax and imposition of penalties.
2. Nature of transfer of technical know-how and its classification under "Intellectual Property Rights Service".
3. Application of revenue neutrality.
4. Invocation of extended period of limitation.
5. Imposition of penalties and invocation of section 80 for waiver of penalties.

Issue-wise Detailed Analysis:

1. Confirmation of Demand of Service Tax and Imposition of Penalties:
The appeals were filed by M/s. Badve Helmets India Pvt. Ltd. against the confirmation of demand of service tax and imposition of penalties under Sections 70, 76, 77, and 78 of the Finance Act, 1994. The appellant company, a joint venture, was accused of failing to pay service tax on the provision of technical know-how, categorized under "Intellectual Property Rights Service". The appellant argued that since M/s. Vemmar SRL, Italy, subscribed to the share capital of the appellant company, the relationship was not of service provider and recipient. However, the lower authorities confirmed the demands.

2. Nature of Transfer of Technical Know-How and Its Classification Under "Intellectual Property Rights Service":
The appellant contended that the transfer of technical know-how was permanent, as per Article IX of the joint venture agreement, and thus did not fall under "Intellectual Property Rights Service" defined in Section 65 (55b) of the Finance Act, 1994, which pertains to temporary transfers. The Commissioner (Appeals) found that the agreement did not allow the appellant to use the transferred property freely, indicating that M/s. Vemmar SRL, Italy, retained significant control over the intellectual property. Consequently, the Commissioner concluded that there was no permanent transfer of IPR, and the service was taxable.

3. Application of Revenue Neutrality:
The appellant argued that if they paid the service tax, they would be entitled to Cenvat Credit, resulting in a revenue-neutral situation. The Tribunal noted that the impugned order did not examine the issue of revenue neutrality, which is critical for determining the invocation of the extended period of limitation.

4. Invocation of Extended Period of Limitation:
The appellant claimed that the demand was time-barred as the department was aware of the agreement in 2008, and the show-cause notice was issued beyond the normal period of limitation. The Tribunal found that the show-cause notice was issued within the five-year period prescribed for the extended period of limitation under Section 73 of the Finance Act. The Tribunal emphasized that the date of knowledge of the department is irrelevant if the extended period is invoked on the grounds mentioned in the Act.

5. Imposition of Penalties and Invocation of Section 80 for Waiver of Penalties:
The Tribunal noted that the issue of penalties and the invocation of Section 80 for waiver of penalties needed to be decided after examining the revenue neutrality argument. The Tribunal upheld the demand on merit but remanded the case to the Commissioner (Appeals) to examine the issue of limitation in light of the revenue neutrality argument.

Conclusion:
The Tribunal upheld the demand for service tax on merit but set aside and remanded the impugned order to the Commissioner (Appeals) for re-examination of the limitation issue concerning revenue neutrality. The appeals were partially allowed by way of remand on these terms.