2019 (1) TMI 1037 - AT - Service Tax

Reverse charge mechanism - services received by the appellant from the service providers situated abroad - Intellectual Property Right service on transfer of technical know-how - activity of technical testing and analysis rendered outside India - commercial training or coaching service rendered outside India - sub-section (1) of Section 73(1) of the Finance Act, 1994 - extended period of limitation - penalty. Intellectual Property Right service on transfer of technical know-how - Held that - Know-how is not recognized as Intellectual Property law by any Indian Law for the time being in force. In fact know-how is the undisclosed information cited by the Department clarification dt. 10/09/2004 as example of intellectual property right not covered by any Indian law. The transaction in the present case was for know-how which is in the nature of property, no service was provided by the foreign companies - there cannot be any service tax on technical know-how - demand set aside. Activity of technical testing and analysis rendered outside India - Held that - Though the appellant had challenged the same but during the course of argument, the learned counsel for the appellant submitted that they are not challenging the same. Commercial training or coaching service rendered outside India - Held that - The seminar was exclusively conducted outside India. Further, it is found that appellant has also attached the copies of the certificates showing the payment for the seminar which were conducted outside the country. In view of these facts, it can be said that since training and coaching service happened outside India, the appellants were not liable to pay service tax as the same is excluded from the ambit of Rule 3(1)(ii) of the Rules. Extended period of limitation - penalty - Held that - The Department has invoked the extended period of limitation as the period of dispute relates to January 2007 to December 2007 but the show-cause notice was issued on 20/10/2008 - the Department was aware of all the payments made by the appellant to their foreign companies for transfer of technical knowhow which came to the knowledge of the Department in July 2005 itself and show-cause notice was issued - further, in the present case, the demand is on reverse charge basis in terms of Section 66A of the Finance Act and the appellant will be entitled to take the credit of entire service tax and the entire exercise is revenue neutral - extended period of limitation is not invocable - no penalty can be imposed on the appellant sunder Section 78 of the Act. Appeal allowed in part.

Issues Involved:

1. Demand of service tax under the category of Intellectual Property Right service on transfer of technical know-how.
2. Demand of service tax on the activity of technical testing and analysis rendered outside India.
3. Demand of service tax on commercial training or coaching service rendered outside India.
4. Invocation of the extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Demand of Service Tax under Intellectual Property Right Service on Transfer of Technical Know-How:

The appellant contested the demand of service tax on the royalty/license fee paid to M/s. ABB Technology Ltd., Zurich, Switzerland for technical know-how. The appellant argued that the technical know-how provided by the foreign companies does not constitute a service under the category of Intellectual Property Right service as defined in Section 65(55a) and Section 65(55b) of the Finance Act, 1994. The appellant relied on various judicial precedents, including their own case (2017(49) STR 209) and decisions such as Asea Brown Boveri Ltd. Vs. CCE&ST, LTU, Bangalore [2017(49) STR 209 (Tri. Bang.)], which held that technical know-how does not fall under the definition of Intellectual Property Right and is not taxable. The Tribunal agreed with the appellant, stating that the know-how is not recognized as Intellectual Property by any Indian law and thus, the demand of ?6,28,85,949/- under this category was set aside.

2. Demand of Service Tax on Technical Testing and Analysis Rendered Outside India:

The appellant initially contested this demand but later did not press for it during the arguments. The Tribunal did not delve into this issue further and decided against the appellant.

3. Demand of Service Tax on Commercial Training or Coaching Service Rendered Outside India:

The appellant argued that the commercial training or coaching services were conducted outside India, specifically citing a seminar attended by their employees in Lusanne, Switzerland. The appellant provided evidence, including certificates of participation, to support their claim. The Tribunal agreed that since the services were rendered outside India, they were excluded from the ambit of Rule 3(1)(ii) of the Rules, and thus, the appellant was not liable to pay service tax on these services.

4. Invocation of the Extended Period of Limitation and Imposition of Penalties:

The appellant argued that the extended period of limitation was wrongly invoked as the Department was aware of all the relevant facts since July 2005. The Tribunal referred to the Apex Court's decision in Nizam Sugar Factory Vs. CCE, AP [2008(9) STR 314 (SC)], which states that when the Department is aware of the facts, suppression of facts cannot be alleged. The Tribunal found that the demand for the period January 2007 to March 2007 was time-barred. Additionally, since the demand was on a reverse charge basis and the appellant could take credit of the service tax paid, the entire exercise was revenue-neutral. Therefore, the Tribunal held that the extended period of limitation was not invocable, and no penalty could be imposed under Section 78 of the Act.

Conclusion:

The Tribunal set aside the demand of service tax on technical know-how and commercial training or coaching services. The demand on technical testing and analysis services was not contested and thus decided against the appellant. The matter was remanded to the original authority for re-computation of the service tax as per the Tribunal's findings. The appeal was partly allowed.

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