2020 (5) TMI 522 - AT - Service Tax

Classification of services - Intellectual Property Rights or not - payments towards the transfer of technology, design, drawing, technical know-how, intangible assets etc. to the overseas company - period 2004-05 to 2008-09 - Circular 80/2004-ST dated 17/09/2004 - HELD THAT - On going through the agreement and Board s circular issued in this regard, it is clear that there is a certain transfer of know-how involved it is not coming from the records of the case that such technical know-how, design, copy right etc have been patented in India in view of the clarification given by the Board unless such technical know-how etc are listed under the law for time being in force in the country and the services cannot be held to be a taxable service. The services received by the appellants from Rolls Royce Turbomeca Limited, U.K. are not in the nature of Intellectual Property Services as defined under Finance Act, 1994 - appeal allowed - decided against Revenue.

Summary

Issues involved:
Interpretation of service tax liability on payments made towards transfer of technology, design, drawing, technical know-how, intangible assets to overseas company under an Inter-governmental agreement.

Analysis:
The appeal involved the issue of whether payments made by the appellants to an overseas entity under an Inter-governmental agreement for transfer of technology, design, technical know-how, etc., should attract service tax liability under the category of "Intellectual Property Rights." The Department issued a show-cause notice demanding service tax, which was confirmed partially in the impugned order. The appellant contended that the agreement was between two Governments, and the payments were not for commercial activities but for defense purposes. The appellant also cited previous judgments where similar payments were not held taxable under specific service categories.

The Department argued that the agreement was between a PSU and a foreign entity under a general agreement between the Governments of U.K. and India, emphasizing the presence of patents, designs, and copyrights in the agreement. The Tribunal analyzed the issue, considering similar services received at different locations for manufacturing aircraft under Inter-governmental agreements. The Tribunal noted that technical know-how was transferred, but since it was not patented in India as per the Board's circular, the services could not be considered taxable. The Tribunal also referred to a Mumbai Bench judgment highlighting that payments for transfer of technical know-how may not fall under scientific or technical consultancy services.

Based on the analysis, the Tribunal found that the services received by the appellants did not qualify as Intellectual Property Services under the Finance Act, 1994. Consequently, the appeal was allowed, and any consequential relief was granted as per the law. The judgment was pronounced and dictated in open court on 27/02/2020.