2010 (2) TMI 305 - AT - Service Tax

Scientific and Technical Consultancy Service- the appellants received technical know-how from a foreign company based in Japan for the production of rubber products during the period 1-4-2002 to 30-9-2004 and paid royalty to the supplier of technical know-how under an agreement. The demand is raised on the ground that the services received fall under the category of Scientific and Technical Consultancy Service and service tax was payable in terms of Rule 2( (d) (iv) of the Service Tax Rules, 1994. Held that-in the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY, recipient of taxable services from a person abroad having no office in India was not liable to pay tax on such services prior to 1-1-2005. The impugned order is not sustainable in law. The appeal is allowed.

Summary

Issues:
1. Classification of services received as 'Scientific and Technical Consultancy Service' for service tax liability.
2. Applicability of service tax on services received from a foreign company.
3. Interpretation of relevant legal provisions and precedents regarding service tax liability on services received from abroad.

Analysis:
1. The appellant, M/s. Elgi Rubber Products Ltd., filed an appeal seeking to vacate an order that imposed a demand and penalties under various sections of the Finance Act, 1994, based on the classification of services received as 'Scientific and Technical Consultancy Service.' The appellant had received technical know-how from a foreign company for the production of rubber products and paid royalty under an agreement. The impugned order sustained the demand based on this classification. However, the appellant argued that the services received were for technical know-how required for production and were properly classified as 'Intellectual Property Rights' services, as acknowledged by the authorities. The Tribunal found the impugned demand and penalties unsustainable, ruling in favor of the appellant.

2. The appellant contended that as a recipient of services from a foreign entity, they were liable to pay service tax only from a specific date when relevant legal provisions were introduced. The appellant cited legal precedents, including a judgment by the Hon'ble High Court of Bombay and a decision by a Larger Bench of the Tribunal, to support their argument that service tax liability did not apply to services received from abroad before a certain date. The Tribunal considered these arguments and found that the impugned demand and penalties were not sustainable based on the applicable legal provisions and precedents cited by the appellant.

3. The Tribunal, after reviewing the case records and submissions, concluded that the services received by the appellant were correctly classified as 'Intellectual Property Rights' services, not 'Scientific and Technical Consultancy' services. The Tribunal also considered the legal position regarding the liability of service tax on services received from a foreign entity without an office in India before specific dates as per relevant judgments. Based on the classification of services and the legal interpretations provided, the Tribunal allowed the appeal, deeming the impugned order unsustainable in law.

In conclusion, the Tribunal ruled in favor of the appellant, M/s. Elgi Rubber Products Ltd., finding the demand and penalties imposed under the Finance Act, 1994 unsustainable due to the incorrect classification of services received and the applicable legal provisions regarding service tax liability on services received from abroad.