2019 (2) TMI 85 - AT - Service Tax

Extended period of limitation - Revenue neutrality - import of services - reverse charge - Scientific and Technical Consultancy service - appellants have entered into a master agreement with M/s. Europlex Ireland for receiving R&D services. By such agreement, it was agreed that M/s. Europlex shall establish a separate technology department which shall provide R&D assistance to the appellant - Held that - Undisputedly, M/s. Europlex is engaged in design, development and manufacture embedded control and communication products and software. They have taken up the responsibility of putting up a separate department for research and development of the projects and products of appellant and therefore it can be strongly inferred that they have the capacity for such research and development activities. The amount paid by the appellant to M/s. Europlex is also for the services of such assistance rendered in R&D activity. The definition of taxable service included not only advice, consultancy but also technical assistance rendered in any manner, either directly or indirectly, in disciplines of science or technology. It can be concluded that the assistance given by M/s. Europlex to the appellant for its research and development activity is nothing but technical assistance for improvement of its projects / products - In the present case, there is no transfer of technical know-how. It is only a technical assistance for research and development activities, which would definitely fall under scientific or technical consultancy service - demand do not sustain. Time Limitation - Held that - The show cause notice for the period October 2007 to April 2008 has been issued on 24.4.2010. Being a revenue neutral situation, as per the decisions of the Tribunal, the demand raised invoking extended period is not sustainable. The appellants had disclosed the amounts in the accounts and financial statement. The issue whether the transaction would fall under Scientific or Technical Consultancy service is interpretational too - apart from a bald allegation that appellant suppressed facts there is no positive act on the part of appellant brought out in show cause notice or impugned order as to suppression - appeal succeeds on limitation coupled with revenue neutrality. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability to pay service tax under 'Scientific or Technical Consultancy Service'.
2. Nature of payments made to M/s. Europlex - whether reimbursable expenses.
3. Applicability of extended period for demand due to alleged suppression of facts.
4. Revenue neutrality and eligibility for CENVAT credit.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax under 'Scientific or Technical Consultancy Service':
The primary issue was whether the services provided by M/s. Europlex to the appellant fell under the category of 'Scientific or Technical Consultancy Service' as defined under section 65(92) and taxable under section 65(105)(za) of the Finance Act, 1994. The appellant argued that M/s. Europlex, being a subsidiary, provided technical know-how rather than consultancy or advice, and thus did not fall under the specified service category. The Tribunal examined the agreement, noting that M/s. Europlex was engaged in research and development activities for the appellant and its affiliates. The Tribunal concluded that the assistance provided by M/s. Europlex constituted technical assistance for R&D, which falls within the definition of 'Scientific or Technical Consultancy Service'. Therefore, the appeal failed on merits regarding this issue.

2. Nature of Payments Made to M/s. Europlex - Whether Reimbursable Expenses:
The appellant contended that the payments made to M/s. Europlex were merely reimbursements for expenses like wages, salaries, rent, etc., and thus not subject to service tax as per the Supreme Court's decision in Union of India Vs. Intercontinental Consultants & Technocrats Pvt. Ltd. The Tribunal reviewed the agreement and found that the payments were compensation for R&D support and hosting charges, not actual reimbursable expenses. Consequently, the Tribunal determined that the decision in Intercontinental Consultants & Technocrats was not applicable to this case.

3. Applicability of Extended Period for Demand Due to Alleged Suppression of Facts:
The appellant argued that the demand was time-barred as the show cause notice was issued on 24.4.2010 for the period October 2007 to April 2008. They claimed there was no intention to evade tax, and the situation was revenue neutral since they could avail CENVAT credit. The Tribunal agreed, noting that the appellant had disclosed the amounts in their accounts and financial statements, and the issue was interpretational. The Tribunal found no evidence of suppression of facts by the appellant and held that the extended period for demand was not invocable.

4. Revenue Neutrality and Eligibility for CENVAT Credit:
The appellant maintained that the entire exercise was revenue neutral because they would be eligible for CENVAT credit on the service tax paid under reverse charge. The Tribunal acknowledged this, stating that since the appellant could take credit for the service tax paid, there could be no intention to evade payment. The Tribunal concluded that the demand raised by invoking the extended period was unsustainable due to the revenue-neutral nature of the situation.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential reliefs, if any. The miscellaneous application for changing the cause title from M/s. Siemens Building Technology P. Ltd. to M/s. Siemens Ltd. was also allowed.