2019 (4) TMI 1416 - AT - Service Tax

Classification of services - Intellectual Property Services or otherwise - manufacture and supply of machinery and equipment under License Agreements with two foreign companies located outside India - HELD THAT - The issue is no more res-entigra in view of the circular issued by CBEC and DGST dated 21/12/2007. Section 66A of the Finance Act, 1994, inserted with effect from 18-04-2006, provides that where any taxable service is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service. The impugned order is modified to the extent that the demand of Service Tax w.e.f. 19/04/2006 is sustained. The demand for the earlier period is set aside and the penalties imposed under Section 76, 78 77 are set aside - appeal allowed in part.

Issues:
1. Classification of royalty payments for intellectual property services under taxable category.
2. Liability for service tax on consultancy and technical advice services received.
3. Interpretation of the statutory provision regarding taxing services provided from outside India and received in India.

Analysis:
1. The case involved the classification of royalty payments made by the appellant to foreign companies for the use of patents and engineering know-how under the taxable category of intellectual property services. The appellant contended that the payments were for intellectual property rights and not technical assistance, as per the license agreements. The appellant argued that the remittances were correctly classified as payments towards services under the taxable category of Intellectual Property Services. The Tribunal examined the agreements and concluded that the royalty payments were indeed for intellectual property rights related to the manufacture and sale of licensed products, thus justifying the classification under the taxable category.

2. The issue of liability for service tax on consultancy and technical advice services received by the appellant was raised through a Show Cause Notice. The Adjudicating Authority had confirmed a demand for service tax along with interest and penalties under various sections. The appellant challenged this demand before the Tribunal, arguing that the service received was under the category of Intellectual Property Right Service rather than technical assistance. The Tribunal considered the submissions and ultimately modified the impugned order, sustaining the demand for service tax from a specific date while setting aside the demand for the earlier period and the associated penalties.

3. The interpretation of the statutory provision regarding taxing services provided from outside India and received in India was a crucial aspect of the case. The Tribunal referred to Section 66A of the Finance Act, 1994, which was inserted with effect from 18-04-2006. This section specified the conditions under which services provided from outside India and received in India would be considered taxable services. The Tribunal's analysis of this statutory provision led to the modification of the impugned order, clarifying the liability for service tax from a particular date and setting aside penalties imposed under relevant sections. The appeal filed by the appellant was partly allowed based on this interpretation and analysis.

In conclusion, the judgment addressed the complex issues surrounding the classification of royalty payments, liability for service tax on specific services received, and the statutory provisions governing the taxation of services provided from outside India and received in India. The detailed analysis and interpretation provided by the Tribunal led to a modification of the impugned order, offering clarity on the tax liabilities of the appellant in the context of intellectual property services and statutory provisions.

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