2023 (11) TMI 167 - AT - Service Tax

Levy of Service Tax - Intellectual Property Service - import of the Technical know how, lump sum fees and Royalty paid to the foreign service provider - reverse charge mechanism in terms of Section 66A of the Finance Act, 1944 - HELD THAT - There is no dispute on the facts that the amount of Rs 3,55,96,434/- paid by the appellant to M/s Benasedo Spa, Italy for Transfer of Technical know how and Royalty as per their Agreement dated 31-03-2010 has been treated as Taxable Value under Intellectual Property Service by Revenue, attracting total Service Tax of Rs. 21,96,432/- which is in dispute in this case - From the provisions regarding levy of service tax on IPR it is mandatory that the Intellectual Property Right is registered or governed by law in India. In the fact of the present case the service provider being not located in India, it s Intellectual Property Right is not registered under any law in India, therefore for this reason itself the service received by the appellant is clearly not taxable under the reverse charge mechanism in the hands of the appellant. The Fees and Royalty paid by the appellant is towards Intellectual Property Right which is owned by company of Italy and the same is not registered under any law in India in terms of the definition of Intellectual Property Right is given in Section 65(55a) of Finance Act 1994. As per the facts of the present case, since the Intellectual Property Right which is used by the appellant belongs to the overseas supplier and that Intellectual Property Right is not governed by any law in India, therefore levy is not covered under the definition of Intellectual Property Right. Accordingly, the same is not taxable. The amounts debited from Cenvat Credit Account can not be retained by the Government without any authority of law and the same deserves to be returned to the Appellant in accordance with the law. Since the matter decided on its merits, the other issues raised by the counsel regarding the revenue neutrality and time limitations for SCN etc against such demand of Service Tax, are not dealt in this case. The impugned order confirming demand of Service Tax with interest and Penalty is not sustainable against the Appellant. As a result the impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Liability to pay Service Tax on "Intellectual Property Service" under reverse charge mechanism.
2. Payment of Service Tax from Cenvat Credit Account.
3. Applicability of time limitation for the Show Cause Notice (SCN).

Summary:

1. Liability to pay Service Tax on "Intellectual Property Service" under reverse charge mechanism:
The core issue was whether the lump sum fees and royalty paid for the import of technical know-how attract Service Tax under "Intellectual Property Service" as per Section 66A of the Finance Act, 1944. The appellant argued that the Intellectual Property Right (IPR) of the overseas supplier was not registered in India, thus not liable for Service Tax. The Tribunal agreed, citing multiple precedents, that for Service Tax to be levied on IPR, the right must be registered under Indian law. Since the IPR in question was not registered in India, the service received by the appellant was not taxable.

2. Payment of Service Tax from Cenvat Credit Account:
The appellant contended that they had already debited the Service Tax from their Cenvat Credit Account, which was permissible under Rule 3(4) of the Cenvat Credit Rules, 2004. The Tribunal supported this view, referencing previous decisions, and held that the debited amounts could not be retained by the government without legal authority. Thus, the amounts debited from the Cenvat Credit Account should be returned to the appellant.

3. Applicability of time limitation for the Show Cause Notice (SCN):
The appellant argued that the SCN dated 05.09.2014 was time-barred as it was issued beyond the one-year limitation period for payments made in 2010-11. The Tribunal did not delve deeply into this issue, having already decided the matter on its merits, but noted the appellant's position that there was no intent to evade tax and that the situation was revenue-neutral.

Conclusion:
The Tribunal set aside the impugned order confirming the demand of Service Tax with interest and penalty, allowing the appeal with consequential relief. Additionally, the miscellaneous application for the change of the appellant company's name was allowed.

(Pronounced in the open Court on 02.11.2023)