2015 (9) TMI 989 - AT - Service Tax

Business auxiliary service - management, maintenance or repair service - Penalty u/s 76, 77 & 78 - Held that - Merely because somebody evaded sales-tax, it would not mean that the transaction would not be a sale, even if, it satisfied the definition of sale. We find from the adjudication order that even in respect of the 5 contracts, which have been specifically mentioned therein the adjudicating authority has prima facie not adverted to and dealt with the contentions of the appellants that they did not constitute ECIS as is evident, for example from para 88 of the impugned order. It is seen that the benefit of Notification No. 12/2003-S.T. has also not been extended and prima facie the reasons, therefor, have also not been clearly brought out. - As regards the demand under Intellectual Property Rights Services, it is seen that the right to fabricate products was transferred on November 1, 2002 when the said service was not liable to tax. Merely because the payment for that transfer continued even during the period when that services became liable to tax does not negate the fact that the taxable event was the transfer of rights which took place during the time when the service was non-taxable. Regarding the impugned demand relating to management, maintenance or repair service the appellants have prima facie made out a good case that as the management, maintenance or repair was performed outside India by the persons also located outside India and on the goods located outside India, prima facie, there is no import of service. - appellants have made out a good case for waiver of pre-deposit and so waive the requirement of pre-deposit and stay recovery of the adjudicated liabilities during pendency of the appeal - Stay granted.

Summary

Issues involved: Stay application against Order-in-Original confirming demands under various services along with penalties under Section 76, 77, and 78 of the Finance Act, 1994.

Analysis:

1. Erection, Commissioning, and Installation Services (ECIS): The appellants contended that demands were confirmed without proper scrutiny of 38 contracts, with only 5 contracts considered. They argued that some contracts were for goods supply, not services. They highlighted that the CESTAT Larger Bench addressed the taxability of composite contracts before 1-6-2007, indicating the extended period cannot be invoked. The adjudicating authority extrapolated findings from 5 contracts to all 38, leading to unjustified demands. The AR's argument on sales-tax absence was deemed irrelevant to determining the nature of transactions.

2. Sales Promotion and Marketing Services: The AR acknowledged that services provided to foreign entities were covered by a CESTAT judgment deeming them exported and not liable to service tax. Regarding royalty income for licensing technical information, the appellants argued that the service was not taxable when the agreement was effective, citing a relevant case to support their stance.

3. Intellectual Property Rights Services: The transfer of rights occurred when the service was non-taxable, despite payments continuing during the taxable period. Reference to a case highlighted that continuous provision of know-how was crucial for taxability. Precedents were cited where transactions before service tax imposition were not taxable.

4. Management, Maintenance, and Repair Services: The appellants argued that services were performed outside India, involving persons and goods located outside India, negating any import of service. They made a strong case for the waiver of pre-deposit, leading the tribunal to waive the requirement and stay recovery of adjudicated liabilities during the appeal.

5. Overall View: The tribunal found merit in the appellants' contentions, especially regarding ECIS and foreign service provisions, leading to the waiver of pre-deposit. The judgment emphasized the need for proper scrutiny of contracts, relevance of taxability timelines, and the location of service performance in determining tax liability.