2014 (7) TMI 822 - AT - Service Tax

Waiver of pre-deposit - Receipt of IPR service from U.S. firm - Revenue distinguished case law relied upon by assessee - Held that - transfer of technical know-how took place when it was not a taxable services and the consideration was paid when the activity became taxable. As such, the service cannot be held to have been rendered at the time when it became taxable - the fact that the payment was made one time in the case of Denso Haryana Pvt. Ltd. case whereas royalty is being paid on the yearly basis in the present case cannot be adopted as a criteria to distinguish the ratio of law declared in the case of Denso Haryana Pvt. Ltd. Admittedly the royalty is being paid in terms of contract entered in the year 2002 when IPR was not a taxable service. As such, the appellant has a strong prima facie case in his favour, requiring dispensation of pre-deposit - Following decision of Denso Haryana Pvt. Ltd. v. CCE, Delhi-III reported in 2014 (7) TMI 752 - CESTAT NEW DELHI - Stay granted.

Summary

Issues:
Prayer for dispensation of pre-deposit of Service Tax and penalties under Sections 75 and 77 of Finance Act, 1994.

Analysis:
The appellant sought dispensation of the pre-deposit of Service Tax and penalties totaling Rs. 4,03,791/- and Rs. 5,000/- respectively. The tax liability was confirmed for the period from 27th September 2006 to 26th November 2007 due to receiving IPR services from a U.S. firm, necessitating duty liability on a reverse charged basis. The appellant argued that the services were received under an agreement from October 2002 when IPR services were not taxable, with royalty payments made annually to a foreign collaborator. The Tribunal referenced the case of Denso Haryana Pvt. Ltd. v. CCE, Delhi-III, which established that the transfer of technical know-how occurred when it was not a taxable service, and payment was made when it became taxable, leading to a determination that the service was not rendered at the taxable time. The Tribunal found the difference between technical know-how and IPR services irrelevant, emphasizing the relevance of legal principles over service distinctions. The yearly royalty payments under the appellant's contract from 2002, when IPR was not taxable, supported a strong prima facie case for dispensation of pre-deposit, leading to the stay petition being allowed.

This judgment highlights the importance of legal principles in determining tax liability, emphasizing the timing of service provision and payment in relation to taxable periods. The Tribunal's reliance on precedent to support the appellant's case underscores the significance of legal reasoning and contractual terms in tax disputes. The decision serves as a reminder of the need for consistency in applying legal principles across different types of services, focusing on the underlying contractual arrangements and tax implications. The allowance of the stay petition showcases the Tribunal's commitment to ensuring fairness and equity in tax matters, particularly when strong prima facie cases are presented by appellants.