2008 (1) TMI 230 - AT - Service Tax

Appellants had received technical know-how from a foreign collaborator along with right to use their brand name in exchange for payment of royalty - SCN neither put the appellants on notice as to their exact liability nor indicate the category of the services which the assessee had received - As rightly pointed out by learned counsel it is a fundamental flaw in the proceedings and the consequential demand is not sustainable hence stay is granted

Summary

Issues:
1. Classification of services for service tax liability.
2. Validity of Show Cause Notice in determining liability.
3. Sustainability of demand and penalties imposed.

Analysis:
1. The issue of classification of services for service tax liability arose in the case of M/s. Faiveley Transport India Ltd. The Commissioner demanded service tax from the appellants for receiving technical know-how and brand name usage in exchange for royalty payment. The original authority had dropped the demand based on a Tribunal decision. However, in the impugned order, the services were classified as "Consulting Engineer" service. The Tribunal found a fundamental flaw as the Show Cause Notice did not specify the category of services, rendering the demand unsustainable. The appellants were granted waiver of predeposit and stay of recovery.

2. The validity of the Show Cause Notice in determining liability was challenged by the appellants. They argued that the notice did not classify the impugned services under any category, leading to unclear grounds for the demand. The learned counsel contended that without proper notice of liability, no liability could be fastened on the assessee. The Tribunal agreed, stating that the lack of clarity in the notice was a fundamental flaw in the proceedings, making the demand and penalties unsustainable.

3. The sustainability of the demand and penalties imposed was a crucial issue in the case. The learned SDR argued that despite difficulties in implementing service tax provisions initially, the appellants were made aware of their liability. However, the Tribunal found that the lack of specific categorization in the Show Cause Notice was a significant flaw. After considering the case records and submissions, the Tribunal concluded that the appellants had made out a prima facie case against the demand and penalties, leading to the waiver of predeposit and stay of recovery as per the impugned order.