2008 (1) TMI 66 - AT - Service Tax

Technical know how fee and royalty paid to their foreign collaborator which the Revenue is of the view comes under the category of consulting engineer - held that such transfer of technical know-how and royalty payment will not be leviable to service tax under the category of consulting engineers - said activities were covered under the service of transfer of intellectual property rights w.e.f. 10-9-2004 and the appellants are paying tax on the same w.e.f. the said date

Summary

Issues:
Appeal against service tax demand on technical know-how fees and royalty payment under consulting engineer service.

Analysis:
The case involves an appeal against the demand of service tax on technical know-how fees and royalty payment made by a company engaged in the manufacture of textile machinery and parts to its foreign collaborator, a German company. The Revenue contended that these payments fall under the category of consulting engineer service, leading to the confirmation of service tax by the Asst. Commissioner. However, the Commissioner (Appeals) set aside this confirmation, stating that the agreements were for transferring technical know-how, allowing the use of intellectual property rights, and not for consultancy or advice. The Commissioner relied on previous Tribunal decisions, including M/s. Navinon Ltd. v. CCE, Mumbai-IV, M/s. Essel Propack Ltd., and BST Limited, which held that royalty payments for technical know-how do not equate to services. The Commissioner also noted that the service of transfer of intellectual property rights was introduced w.e.f. 10-9-2004, and the appellants were paying service tax under this category from that date. The Tribunal further cited the case of BCCI v. CST, Mumbai, emphasizing that the introduction of a new entry does not amend the scope of earlier entries, supporting the Commissioner's decision to set aside the service tax demand.

In conclusion, the appellate authority upheld the Commissioner's decision, rejecting the Revenue's appeal against the demand of service tax on technical know-how fees and royalty payments. The Tribunal found that the transfer of technical know-how and royalty payments were not liable to service tax under the category of consulting engineer service, as they constituted the transfer of intellectual property rights, a distinct service introduced separately under the law. The decision was based on the nature of the agreements, previous Tribunal rulings, and the specific provisions related to intellectual property services introduced in the Finance Act, 1944.