2018 (1) TMI 1019 - AT - Service Tax

Demand of service tax - certain fees/royalty paid by the assessee-Appellants to American Petroleum Institute, USA (API) for grant of certificate to their product, so that they can use their monogram API on their final product - reverse charge mechanism - Held that - Admittedly, the nature of service received by the assessee-Appellants are rightly covered under Intellectual Property Right Service . This is not seriously contested by the assessee-Appellants also. However, the tax liability confirmed under Technical Testing & Certification Services cannot be sustained as the assessee-Appellants paid fees/royalty for use of API monogram on their product as a sign of quality. The amount paid also categorised as fees/royalty - we uphold the tax liability on the assessee-Appellants on reverse charge basis on such consideration paid by them to the American Petroleum Institute, USA. The said service is taxable as Intellectual Property Rights (IPR). Time Limitation - Held that - the first notice was issued on 08.01.2010 on the same activity and the second was issued on 22.11.2012, however, with a different classification - there is no justification invoking the extended period in the second show cause notice. Appeal allowed in part.

Summary

Issues:
1. Tax liability on fees/royalty paid to American Petroleum Institute for product certification under Service Tax
2. Applicability of reverse charge mechanism under Section 66A of the Finance Act, 1994
3. Classification of services under 'Technical Testing & Certification Services' and 'Intellectual Property Right Services'
4. Justifiability of penalties and extended period for demand of Service Tax

Analysis:

Issue 1: Tax liability on fees/royalty paid to American Petroleum Institute for product certification under Service Tax
The appeals revolved around the tax liability of the assessee-Appellants concerning fees/royalty paid to the American Petroleum Institute (API) for the certification of their products. The Revenue contended that the consideration paid was subject to Service Tax under reverse charge basis as per Section 66A of the Finance Act, 1994. The dispute arose from the differing tax entries used by the Revenue for the same activity. The Tribunal upheld the tax liability on the assessee-Appellants, categorizing the service as Intellectual Property Rights (IPR) due to the use of the 'API' monogram as a quality sign on their products.

Issue 2: Applicability of reverse charge mechanism under Section 66A of the Finance Act, 1994
The Tribunal analyzed the applicability of the reverse charge mechanism under Section 66A of the Finance Act, 1994, in the context of the fees/royalty paid by the assessee-Appellants to API. It was determined that the consideration paid for the use of the 'API' monogram constituted a taxable service falling under Intellectual Property Rights (IPR), thereby affirming the tax liability on the assessee-Appellants under the reverse charge mechanism.

Issue 3: Classification of services under 'Technical Testing & Certification Services' and 'Intellectual Property Right Services'
The Tribunal noted the discrepancy in the tax entries used by the Revenue for taxing the services received by the assessee-Appellants. While the nature of the service was correctly categorized as 'Intellectual Property Right Service,' the Revenue had initially taxed it under 'Technical Testing & Certification Services.' The Tribunal clarified the correct classification of the service as Intellectual Property Rights (IPR) based on the payment of fees/royalty for the use of the 'API' monogram.

Issue 4: Justifiability of penalties and extended period for demand of Service Tax
Regarding the question of limitation and penalties, the Tribunal observed that the demand for Service Tax should be restricted to the normal period without invoking the extended period. The Tribunal found no justification for initiating recovery proceedings under different tax entries for the same activity, leading to a partial allowance of one appeal and full allowance of another.

In conclusion, the Tribunal partially allowed one appeal and fully allowed another, affirming the tax liability on the assessee-Appellants under the reverse charge mechanism for fees/royalty paid to API for product certification, while restricting the demand for Service Tax to the normal period and imposing penalties accordingly.