2013 (11) TMI 555 - AT - Service Tax

Demand of service tax - Classification of service - Annual technical support fee - Consulting Engineers Service or Intellectual property services (IPR) - Held that - agreement provides for supply of technical know-how and assistance for manufacture of diesel engines and components thereof. The technical knowhow includes information regarding design data, manufacturing and quality control impressing processing, design and construction of plant facility, quality related problems of the licenced product and training to the personnel of the Indian entity. The agreement also envisages supply of updated data based on the current research and development and engineering done by the foreign service provider. It is seen that the activity undertaken would more appropriately fall under Intellectual Property Rights Service and not under Consulting Engineers Service and, therefore, the demand of Service Tax under the category of Consulting Engineers Service is not sustainable in law. The ratio of the decisions relied upon by the lower appellate authority would also apply - agreement provides that there are no separate charges for on site assistance and only travelling and living expenses shall be reimbursed by the service recipient to the service provider - Decided against Revenue.

Summary

Issues:
Classification of services under Consulting Engineers' Service for Service Tax liability.

Analysis:
The case involves two appeals filed by the Revenue against Orders-in-Appeal passed by the Commissioner of Central Excise. The dispute arises from services provided by a foreign entity to an Indian counterpart for technical assistance in manufacturing diesel engines. The Revenue contends that the services should be classified under Consulting Engineers' Service, warranting Service Tax liability. The lower appellate authority, however, set aside the original adjudicating authority's decision based on precedents indicating that the services do not fall under Consulting Engineers' Service. The Indian entity paid Service Tax under protest, later seeking a refund. The appellate authority allowed the refund, leading to the Revenue's appeal.

The Revenue argues that the foreign entity's services involve onsite technical assistance, qualifying them as Consulting Engineers' Service. They rely on a Tribunal decision in a similar case to support their position. Conversely, the respondents argue that the agreement does not specify separate charges for onsite technical assistance, distinguishing it from the precedent relied upon by the Revenue. They assert that previous Tribunal decisions consistently held that technical know-how services do not fall under Consulting Engineers' Service.

Upon review, the Tribunal examines the agreements between the foreign and Indian entities, noting the provision of technical know-how for manufacturing processes. The Tribunal concludes that the services align more with 'Intellectual Property Rights Service' rather than Consulting Engineers' Service, rendering the Service Tax demand unsustainable. Additionally, the Tribunal finds the IFFCO case cited by the Revenue distinguishable due to material differences in payment clauses between the agreements. Consequently, the Tribunal dismisses the Revenue's appeals based on the factual and legal positions presented.

In summary, the Tribunal rules in favor of the respondents, determining that the services provided do not fall under Consulting Engineers' Service for Service Tax liability. The decision is based on a detailed analysis of the agreements, distinguishing factors from prior cases, and the nature of the services rendered, ultimately leading to the dismissal of the Revenue's appeals.