2014 (1) TMI 1048 - AT - Service Tax

Nature of payment towards technical knowhow and inspection charges and royalty charges paid to Hitachi Japan - Consulting engineer or Scientific & Technical Consultancy service or Franchise service - Penalty u/s 78 - Interest u/s 75 - Whether the payment towards Technical Knowhow and inspection charged and Royalty by the appellants to M/s. Hitachi Japan for the period September 04 for the service received by them falls in the category of Consulting Engineering Service - Held that - The technical knowhow provided by the foreign company as per the Licensed agreements was transfer of intellectual property rights and no consultancy or advice was involved and hence the same was not liable to service tax under consulting engineer service. Further the Government has specifically covered this service for levy of service tax with effect from 10/09/2004 under Section 65 (55b) of the Finance Act, 1944 as Intellectual Property Service the definition of Intellectual Property Service given under clause (55b) of section 65 is very specific and cover within its ambit, the sale of intellectual property right or transfer or just giving right to the other person for the use or enjoyment of any intellectual property right. Therefore the technical knowhow provided by the Licensor could not be termed as advice or consultancy. Similar view that technical knowhow fee and royalty paid to holding company towards right to use trademark merely a transaction in property and not a consultancy advice - Therefore, the technical knowhow provided by the Licensor cannot be equated with any service covered under consulting engineering service for Sep 2004 and hence the service tax demanded and confirmed on royalty under consulting engineering service is set aside - Decided against Revenue.

Summary

Issues: Service tax liability on payment towards technical knowhow, inspection charges, and royalty charges paid to a foreign company.

Analysis:
The appeal was filed by the Revenue against the Original Impugned Order (OIO) demanding service tax on the services received by the appellants from a foreign company. The services in question were related to technical collaboration agreement and royalty paid to the foreign company. The adjudicating authority considered the services as taxable under the category of 'Consulting Engineer' and imposed a demand for service tax, penalty, and interest. The first appellate authority set aside the OIO and allowed the appeal filed by the assessee.

The main issue in this case was whether the payment made by the appellants towards technical knowhow, inspection charges, and royalty to the foreign company fell under the category of Consulting Engineering Service for the purpose of service tax liability. The first appellate authority analyzed the facts and concluded that the payment made by the appellants was for the transfer of intellectual property rights, technical information, and know-how, and not for any consultancy or advice. Citing relevant case laws, the authority held that royalty payments for the use of technology or know-how do not amount to a payment for services rendered and cannot be equated with consulting engineer services. The authority also noted that the Government specifically covered such services under 'Intellectual Property Service' for levy of service tax. Therefore, the technical knowhow provided by the foreign company was not liable to service tax under consulting engineering service for the period in question.

The Tribunal found that the first appellate authority's decision was in line with the judgment of the Hon'ble High Court of Gujarat in a similar case. The Tribunal upheld the decision of the first appellate authority, stating that the impugned order was legally sound and did not have any infirmity. Consequently, the appeal filed by the Revenue was rejected, and the penalty and interest imposed were set aside in line with the decision on the service tax liability issue.