2008 (2) TMI 87 - AT - Service Tax

Technical Collaboration Agreement to obtain technical know-how & assistance from foreign co. for setting up a plant in India - fee @ 5% of the net ex-factory sale price of the contract products, paid by assessee Revenue failed to show that technical assistance would come within the scope of licences, rights, privileges not exigible to service tax under consulting engineer s service but it is covered by Intellectual Property Service on which tax was not leviable prior to Sept. 2004

Summary

Issues:
1. Taxability of technical collaboration fee under service tax.
2. Challenge to penalty imposed under Section 77 of the Finance Act, 1994.

Issue 1: Taxability of Technical Collaboration Fee:
The case revolved around a Technical Collaboration Agreement where the appellants obtained technical know-how from a foreign company and paid a fee for it. The dispute was whether the technical collaboration fee was subject to service tax as 'consulting engineer's service'. The appellants argued that it fell under 'Intellectual Property Service' and cited relevant decisions to support their case. The Tribunal analyzed the agreement's provisions and found that the fee was for technical know-how and access to modifications, not for engineering services. The Tribunal distinguished previous cases cited by the Revenue and held that the fee was not for consulting engineer's service. The Revenue's demand for service tax on the entire fee without a breakdown was deemed impermissible.

Issue 2: Penalty Imposed under Section 77:
The appellants also challenged the penalty imposed under Section 77 of the Finance Act, 1994. The original authority had dropped the proceedings, but the Commissioner reinstated the demand and imposed the penalty. The Tribunal, after considering the arguments and finding in favor of the appellants regarding the taxability of the technical collaboration fee, set aside the impugned order and allowed the appeal. The penalty imposed under Section 77 was consequently overturned.

In conclusion, the Tribunal ruled in favor of the appellants, holding that the technical collaboration fee was not subject to service tax as 'consulting engineer's service' but fell under 'Intellectual Property Service'. The penalty imposed under Section 77 was also set aside. The judgment emphasized the importance of analyzing the nature of payments in agreements to determine the applicability of service tax and highlighted the need for a clear breakdown of fees for tax assessment purposes.