2021 (9) TMI 1271 - AT - Service Tax

Levy of service tax - Intellectual Property Service - amount collected towards license fee for using the software provided would fall under IPR services or not - management consultancy services - extended period of limitation - HELD THAT - The agreement is for right to use software and the activity will not fall under the definition of Intellectual Property Right Services - the software fees have to be treated as an IPR as registered outside India. Only intangible property which is registered within India would fall under IPR service during the relevant period. The software admittedly is registered outside India - the demand under Intellectual Property Right Service cannot sustain and requires to be set aside. Management Consultancy Service - HELD THAT - Admittedly there is no agreement furnished by the department to establish that the appellant has received management consultancy service from M/s. Fox Conn China. On perusal of the invoices it is seen that the amounts are in the nature of vehicle hire charges cost of fuel charges hostel charges selling expenses meal expenses salary to staff attending the foreign personnel etc. There is no evidence for payment of remuneration to the foreign personnel in foreign currency by the appellant. Even though the appellant might have expended huge amounts for the said foreign personnel unless there is evidence that these amounts are paid to foreign personnel for providing management consultancy service the demand is incorrect - There is also no evidence to prove that they have received management consultancy service or paid fees for such services so as to be liable to pay service tax under reverse charge mechanism. On this ground the demand under Management Consultancy Service cannot sustain. Extended period of limitation - HELD THAT - On perusal of the letter issued by department it is seen that after verification of accounts certain objections have been raised inter alia demanding service tax under the above categories. There is no positive act of suppression of facts or willful mis-statement brought out by the department so as to invoke the extended period. Further the appellant is called upon to pay the service tax under reverse charge mechanism for the services. The appellant would be able to avail credit of the same and the situation is entirely revenue neutral. For these reasons we hold that the demand is time-barred. The appellant succeeds on limitation also. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of service tax under Intellectual Property Service.
2. Demand of service tax under Management Consultancy Service.
3. Limitation and revenue neutrality.

Issue-wise Detailed Analysis:

1. Demand of Service Tax under Intellectual Property Service:

The appellants were engaged in manufacturing mobile phone parts and paid license fees to M/s. Sony Ericsson, Sweden for using certain software. The department argued that this license fee fell under Intellectual Property Right (IPR) services, making the appellants liable to discharge service tax under the reverse charge mechanism. The appellants contended that the right to use software is not covered under the definition of IPR services but falls under 'Information Technology Software Services' (ITSS), which was introduced into the service tax net from 16.5.2008. They argued that the software was transmitted electronically and downloaded before ITSS was taxable. The Tribunal agreed with the appellants, noting that the activity fell under ITSS and not IPR services, and since the software was registered outside India, it did not attract service tax under IPR services. The demand under IPR services was thus set aside.

2. Demand of Service Tax under Management Consultancy Service:

The appellants were alleged to have received Management Consultancy Services from M/s. Fox Conn, China, for which they incurred expenses for foreign professionals' boarding, transport, and other incidental costs. The department claimed these expenses fell under Management Consultancy Service, requiring service tax payment under the reverse charge mechanism. The appellants argued there was no agreement for such services and the expenses were merely for incidental costs, not consultancy fees. The Tribunal found no evidence of an agreement or payment of consultancy fees, noting the expenses were for incidental costs in Indian currency. Consequently, the demand under Management Consultancy Service was deemed unsustainable and was set aside.

3. Limitation and Revenue Neutrality:

The appellants argued the demand was time-barred, as the department had raised the issue in 2007, but the Show Cause Notice was issued only in 2010. They also asserted the situation was revenue neutral since any service tax paid under reverse charge mechanism could be availed as CENVAT credit. The Tribunal agreed, noting no suppression of facts or willful misstatement by the appellants and recognizing the revenue-neutral situation. Thus, the demand was also set aside on the grounds of limitation.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any. The demands under Intellectual Property Service and Management Consultancy Service were found unsustainable, and the issue was also time-barred. The judgment was pronounced in open court on 29.09.2021.