2024 (4) TMI 726 - AT - Service Tax

Levy of service tax - Intellectual Property Services - license fees and other incidental expenses paid to the Russian Company i.e. M/s. Rosboronexport, Moscow, Russia towards transfer of technical knowhow and technical assistance for manufacture of aircraft engines - amount received from the Malaysian company i.e. M/s. Setia Technologi SDN, BHD, Malaysia against repair/rectification of MIG Engines - Reverse Charge Mechanism - suppression of facts - Extended period of Limitation. Service tax on license fees and other incidental expenses paid to the Russian Company i.e. M/s. Rosboronexport, Moscow, Russia towards transfer of technical knowhow and technical assistance for manufacture of aircraft engines - HELD THAT - This Tribunal in the case of M/S. SICPA INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS SERVICE TAX, SILIGURI 2017 (9) TMI 1325 - CESTAT KOLKATA held that technical knowhow provided by a foreign company to an Indian company under a licence for manufacture of goods for consideration of Royalty equal to a percentage of net sale price of the goods, was nowhere registered / patented in India as an IPR service and therefore, the recipient of such service was not liable to pay Service Tax under RCM as IPR service - the transfer of technology by M/s. Rosboron export would not qualify as intellectual property right within the meaning of Section 65(55a) of the Act for the various aspects as listed in paragraph 3.1 of this Order and therefore, would not be covered under the definition of intellectual property service within the scope of Section 65(55b). Amount received from the Malaysian company i.e. M/s. Setia Technologi SDN, BHD, Malaysia against repair/rectification of MIG Engines - HELD THAT - The activity of repairs and maintenance was carried out within the jurisdiction of India and therefore was liable for tax under Section 65(105)(zzg) as management, maintenance or repair service and was liable for payment of duty in terms of Rule 3(1)(ii) of the Export of Services Rules, 2005. The Ld. Commissioner vide the impugned order has categorically held that the provision of service having took place in India, there is a breach of Rule 6A of the Service Tax Rules, 1994 and Rule 3(1)(ii) of the Export of Services Rules, 2005. To this extent, the findings of the Ld. Commissioner on the aspect agreed upon. Extended period of limitation - Suppression of facts or not - HELD THAT - There are no merit to impute the charge of suppression to a government organization owned by the Ministry of Defence, for the non-payment of duty / tax with intent to evade the same by suppressing the material information, more so when it is depicted inappropriately and construed accordingly - the demand for the extended period cannot be sustained as there is nothing on record to establish mala-fides on the part of the appellant - the extended period of limitation is not invokable in the circumstances. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Liability to pay service tax on license fees and incidental expenses for transfer of technical knowhow under "Intellectual Property Services".
2. Liability to pay service tax on amounts received from a foreign company for repair/rectification of MIG Engines.

Summary:

Issue 1: Liability to pay service tax on license fees and incidental expenses

The appellant, a public sector company, was issued a Show Cause Notice seeking recovery of Service Tax amounting to Rs. 23,72,60,000/- for the financial years 2007-08 to 2011-12 u/s 73(1) of the Finance Act, 1994, on the license fees and incidental expenses paid to the Russian company M/s. Rosboronexport for transfer of technical knowhow. The Department argued that these payments constituted "Intellectual Property Services" and were subject to service tax under the reverse charge mechanism (RCM) as per Section 66A of the Act.

The appellant contended that the technology transferred was confidential and not registered under any law, thus not qualifying as "intellectual property right" u/s 65(55a) and "intellectual property service" u/s 65(55b). They cited C.B.E.C.'s Circular No. 80/2010/2004-S.T. dated 17.09.2004, which excludes undisclosed information from the definition of IPR.

The Tribunal found that the transfer of technology did not qualify as "intellectual property right" within the meaning of Section 65(55a) and was not covered under "intellectual property service" u/s 65(55b). They referenced previous Tribunal decisions, including SICPA India Pvt. Ltd. and Munjal Showa Ltd., which supported their view that unregistered technical knowhow does not attract service tax under IPR service.

Issue 2: Liability to pay service tax on amounts received for repair/rectification of MIG Engines

The appellant received Rs. 2,75,56,000/- from M/s. Setia Technologi SDN, BHD, Malaysia for repair and overhaul of MIG engines. The appellant claimed this as Export of Service, arguing it was not liable for tax. The Department contended that since the repairs were conducted in India, they were taxable u/s 65(105)(zzg) as "management, maintenance or repair" service, and the provision of service in India breached Rule 6A of the Service Tax Rules, 1994, and Rule 3(1)(ii) of the Export of Services Rules, 2005.

The Tribunal agreed with the Department that the service was taxable as it was performed in India. However, they found the extended period of limitation inapplicable, as the appellant, being a government-owned entity, did not intentionally evade tax. They cited the Supreme Court case Continental Foundation Joint Venture Holding, which emphasized that suppression must be deliberate to justify the extended period. The Tribunal concluded that the appellant's misclassification as Export of Service was a case of misinformation, not suppression.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal, ruling that the appellant was not liable for service tax on the transfer of technical knowhow and that the extended period of limitation could not be invoked for the repair services provided to the Malaysian company.

(Order pronounced in the open court on 17.04.2024)