2023 (6) TMI 1198 - AT - Service Tax

Levy of Service Tax - IPR Service - royalty paid by the appellant-assessee under the agreement - HELD THAT - The only issue involved in the present case relates to levy of service tax on payment of royalty/fee on transfer of technical know-how and the same has been considered by the Tribunal in various cases and has consistently held that know-how is not an IPR within the meaning of service tax law and consequently its transfer is not liable to service tax. Further, Circular No. 80/10/2004- ST dated 17.09.2004 have clarified the scope of taxable entry. In M/S. MUNJAL SHOWA LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE ST, DELHI (GURGAON) AND (VICE-VERSA) 2017 (6) TMI 819 - CESTAT CHANDIGARH it was held that Revenue as it has been clarified that the taxable service include only such Intellectual Property Rights except Copyright that are prescribed under the law for the time being in force, as the term time being in force implies that, as are applicable in India, and Intellectual Property rights covered under Indian law in force alone are chargeable to service tax and Intellectual Property Rights like Integrated Circuits or Undisclosed Information would not cover under the taxable services. Admittedly, Trade Mark rights which have been used by the appellant-assessee are not registered in India, therefore, the same are not liable to tax under IPR service. After taking into consideration, the ratios of various decisions and also the Circular dated 17.09.2004, it is held that the appellant assessee is not liable to pay service tax under IPR service, under Section 65 (105) (zzr) of the Finance Act, 1994. Further, it is found that the findings in the impugned order holding that deduction under Notification No. 17/2004-ST dated 10.09.2004 is available only to service tax paid under Section 66 and not as reverse charge under Section 66A is also contrary to the decision of the Tribunal in the case of M/S ROCHEM SEPARATION SYSTEMS (INDIA) PVT LTD VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I 2015 (1) TMI 1052 - CESTAT MUMBAI . Extended period of limitation - HELD THAT - The extended period cannot be invoked as the appellant-assessee has a bonafide belief that they are not liable to pay service tax on acquisition of know-how. Moreover, the issue relates to interpretation and hence intention to evade tax cannot be inferred. Appeal allowed.

Summary

Issues Involved:
1. Liability of service tax on royalty for technical know-how under Intellectual Property Rights (IPR) Service.
2. Availability of deduction under Notification No. 17/2004-ST.
3. Invocation of extended period of limitation and imposition of penalty.
4. Cum-tax benefit in reverse charge scenario.

Summary:

1. Liability of Service Tax on Royalty for Technical Know-How under IPR Service:
The appellant-assessee, engaged in manufacturing electrical articles, was issued two show cause notices for non-payment of service tax on royalty paid to a France-based company for technical know-how. The Tribunal held that the royalty paid is not liable to service tax under IPR Service as the IPRs were not registered under Indian law. The Tribunal referenced several decisions, including *Lurgi India International Services Pvt. Ltd. v. Commissioner* and *Munjal Showa Ltd. v. CCE*, which consistently held that know-how is not an IPR within the meaning of service tax law.

2. Availability of Deduction under Notification No. 17/2004-ST:
The Tribunal found that the deduction under Notification No. 17/2004-ST is available even for service tax paid under reverse charge mechanism (Section 66A). This finding is supported by the decision in *Rochem Separation Systems (India) P. Ltd. v. CST*, which clarified that the notification's intention is to exempt service tax on cess paid towards the import of technology.

3. Invocation of Extended Period of Limitation and Imposition of Penalty:
The Tribunal held that the extended period of limitation and penalty could not be invoked due to the appellant's bona fide belief that no service tax was payable on the acquisition of know-how. The Tribunal noted that the department was aware of the non-payment as early as November 2008, but the first show cause notice was issued in July 2010. The Tribunal referenced decisions like *Anand Nishikawa Co. Ltd. v. CCE* and *Padmini Products v. CCE* to support this conclusion.

4. Cum-Tax Benefit in Reverse Charge Scenario:
The Tribunal upheld the cum-tax benefit granted by the Commissioner to the appellant-assessee, referencing the decision in *DHL Express (I) Pvt. Ltd. vs. CST*, which held that cum-tax benefit is applicable even in reverse charge scenarios. The Tribunal dismissed the Revenue's appeal challenging this benefit.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the royalty paid for technical know-how is not liable to service tax under IPR Service, the deduction under Notification No. 17/2004-ST is applicable, the extended period of limitation and penalty are not sustainable, and cum-tax benefit is applicable in reverse charge scenarios. The Revenue's appeal was dismissed.