2018 (6) TMI 1160 - AT - Service Tax

Classification of services - royalties pertaining to the sale of the final product - Intellectual Property Service or not? - Reverse Charge Mechanism - Held that - Appellant had imported certain manufacturing equipment and the terms of agreement prescribed payment of some fees that were linked to sale of the output in India. Consequently, the classification of the service as scientific and technical consultancy would appear to be inappropriate and should, have been, instead of intellectual property service - The question of a reverse levy of tax on the recipient of the service under section 66A of the Finance Act, 1994 would arise only if the service itself is taxable and, in the absence of any reason to subject the said royalty to tax, the demand under section 66A would not survive. Appeal disposed off.

Summary

Issues:

1. Incorrect availment of CENVAT credit
2. Tax paid on 'club and association service'
3. Mobilization advance received from M/s Reliance Energy Limited
4. Non-payment of tax under section 66A of Finance Act, 1994 on commission received from M/s Ducon Technologies Inc., USA
5. Payment for other services received from M/s Ducon Technologies Inc.

Analysis:

1. The dispute revolves around the incorrect availment of CENVAT credit by M/s Ducon Technologies (India) Pvt Ltd. The appellant argued that registration and incidence of registration are not material for availing credit, citing a relevant decision. The Tribunal agreed, emphasizing that failure to register is a technical infirmity that cannot hinder credit availment. The demand related to availment without registration was set aside.

2. Regarding the tax paid on 'club and association service,' the appellant did not press the point, and the Tribunal concurred with the findings in the impugned order. The facilities and privileges of membership extended beyond the appellant and its employees, making it ineligible as an 'input service.'

3. The issue of mobilization advance received from M/s Reliance Energy Limited was contested. The appellant argued that the tax liability was discharged subsequently when bills were raised. The Tribunal noted conflicting decisions but acknowledged the need for further examination to determine if the tax and interest liabilities were appropriately discharged.

4. Non-payment of tax under section 66A of the Finance Act, 1994 on commission received from M/s Ducon Technologies Inc., USA, was challenged. The appellant contended that the service should be classified as 'intellectual property service' rather than 'consulting engineers service,' citing relevant case law. The Tribunal agreed, modifying the impugned order accordingly.

5. Lastly, the payment for other services received from M/s Ducon Technologies Inc. was scrutinized. The Tribunal emphasized the need for evidence regarding the intellectual property's subject to Indian laws for taxability to arise. Without sufficient proof, the demand under section 66A would not be sustainable. The impugned order was modified based on the Tribunal's decisions in the aforementioned issues, and the appeal was disposed of accordingly.