2008 (1) TMI 90 - AT - Service Tax

Import of services assessee is receiving patented service Total Productive Maintenance (TPM) from Japanese co. to enhance the productivity of an establishment - original authority demanded service tax from foreign service provider & Indian service recipient covering TPM came under the category of Management Consultancy service - Intellectual Property became a taxable service much after the material period, so OIO is set aside because both parties are different legal entities

Summary

Issues:
- Whether the demand of service tax made on M/s. Sundaram Textiles Ltd./M/s. Japan Institute of Plant Maintenance (JIPM) and the penalties imposed on them are sustainable.
- Whether the service provided by JIPM falls under 'Intellectual Property' not liable to service tax.
- Whether the Show Cause Notice proposing to demand tax from both STL and JIPM and penalizing both for the same activity is legal.
- Whether STL, as an agent of JIPM, was liable to pay service tax for the impugned activity.

Analysis:
1. The appeal was filed by M/s. Sundaram Textiles Ltd. seeking to vacate the order confirming a service tax demand on them and penalties imposed. The original authority found the service provided by Japan Institute of Plant Maintenance (JIPM) under an agreement with STL to be Management Consultancy service, leading to the demand of service tax. The appellant argued that the service provided by JIPM was 'Intellectual Property,' not taxable during the material period.

2. The appellant contended that the service provided by JIPM was for the transfer of intellectual property rights, citing precedents where similar transfers were not considered consultancy services but intellectual property rights transfers. The appellant argued that as a foreign firm without a business establishment in India, JIPM's services could not be taxed during the material period before being brought under the tax net.

3. The appellant challenged the Show Cause Notice proposing to demand tax from both STL and JIPM, arguing it was illegal to penalize both entities for the same activity. The order of the original authority confirmed the duty demand and penalty on both entities, which the appellant deemed unsustainable.

4. The Joint Commissioner submitted that STL acted as an agent of JIPM and paid service tax on their behalf, emphasizing that JIPM was liable to pay service tax for the activity in question. The Intellectual Property sold by JIPM was part of Total Productive Maintenance (TPM), a management technique, and the demand on both entities was justified.

5. The Tribunal analyzed the case records and submissions, noting that TPM was a patented service transferred as intellectual property to STL for consideration. Since intellectual property became taxable post the material period, the activity by JIPM could not be taxed as 'Management Consultancy' during that time. The Tribunal clarified that tax liability should be demanded from the entity liable to pay it, and the order incorrectly held both STL and JIPM as assessees.

6. Referring to a similar case precedent, the Tribunal observed that in situations where foreigners provide services in India without an office, service tax is payable by the agent or authorized person on behalf of the foreign entity. Applying this reasoning, the Tribunal allowed the appeal filed by STL, granting consequential relief.

Conclusion:
The Tribunal allowed the appeal filed by M/s. Sundaram Textiles Ltd., holding that the demand of service tax on them and penalties imposed were unsustainable. The Tribunal clarified that the service provided by Japan Institute of Plant Maintenance (JIPM) was for the transfer of intellectual property rights, not falling under 'Management Consultancy' taxable during the material period. The Tribunal emphasized the correct interpretation of tax liability and ruled in favor of the appellant, granting consequential relief.