2017 (4) TMI 1129 - AT - Service Tax

Consulting engineering service - appellants entered into agreements with various foreign entities for obtaining license to use technical knowhow and technical information and also various engineering services, in connection with setting up of their manufacturing plant - Revenue entertained a view that the appellants received taxable service under the category of consulting engineering service - Held that - The very fact that all these agreements talk about the foreign companies as licensor itself is revealing. In a typical agreement for consultancy service, there will be no licensor or licensee with transfer of licensed process technology or proprietary technical information. The essence of the agreement as could be seen from the narration above is for transfer of technology process. The Tribunal had occasioned to examine similar issues involving technical collaboration and transfer of intellectual property right from foreign companies to Indian recipient. It was held that when the agreement is for transfer of exclusive/non-exclusive technical know-how the consideration received cannot be taxed under consultancy service. Appeal allowed - decided in favor of appellant.

Issues:
1. Whether the appellants received taxable service under the category of consulting engineering service?
2. Whether the demand is contested on the question of time bar?
3. Whether the agreements with foreign collaborators constitute consulting engineering service or transfer of technical knowhow?
4. Whether the demand for extended period and penalties are legally justifiable?

Analysis:
1. The appeal challenged the order of the Commissioner of Central Excise & Service Tax, Bhopal, regarding the tax liability of the appellants for obtaining licenses to use technical knowhow and engineering services from foreign entities. The Revenue asserted that the appellants received taxable service under consulting engineering service. The appellants argued that the agreements were for the transfer of technical knowhow and information, not consulting engineering services. They highlighted that the foreign collaborators' main objective was to transfer technical knowhow, not provide consulting services. The Tribunal examined the agreements and held that the consideration received cannot be taxed under consultancy service, referencing similar cases involving technical collaboration and transfer of intellectual property rights.

2. The appellants contested the demand on the grounds of time bar, asserting their eligibility for credit of the service tax payable. They argued that since the payment was available as credit, there was no suppression of facts or malafide intent. The Tribunal found the demand for an extended period and penalties unjustified, noting that the appellants were eligible for Cenvat credit and rejecting the claim of the Revenue regarding tax liability awareness.

3. The agreements with foreign collaborators were analyzed, revealing that they were primarily for the supply of technical knowhow, process technology, and connected services for setting up manufacturing plants. The Tribunal disagreed with the Revenue's characterization of the services as engineering consultancy, emphasizing that the agreements focused on the transfer of technology rather than consulting services. The Tribunal cited previous decisions to support its conclusion that consideration for the transfer of technical knowhow cannot be taxed as consultancy service.

4. The Tribunal concluded that the impugned order was not legally sustainable and set it aside, allowing the appeal. It noted that the demand for an extended period lacked justification, especially considering the appellants' eligibility for Cenvat credit. The findings on the merits of the case favored the appellants, leading to the decision to allow the appeal and reject the demand for extended period and penalties.

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