2006 (9) TMI 17 - AT - Service Tax

Service Tax Transfer of technical know-how covered under Intellectual property service and not under Consulting engineering services

Summary

Issues involved:
1. Whether the demand for Service Tax on "Consulting Engineers Service" is justified.
2. Whether the transfer of technical know-how can be considered as part of "Consulting Engineer's Service."
3. Whether the transfer of technical know-how should be classified under "Intellectual Property Service" instead of "Consulting Engineer's Service."

Issue 1: The Appellate Tribunal examined the demand for Service Tax on "Consulting Engineers Service" imposed on the appellants for the period May 2002 to July 2004. The Commissioner(Appeals) affirmed the order of the lower authority, demanding Service Tax of Rs. 850215 from the appellants and imposing penalties under various provisions of the Finance Act, 1994. The Tribunal found that the demand was based on the royalty paid by the appellants to their foreign collaborators for the transfer of technical know-how for the manufacture and distribution of 'Mercantile Identification System.' The appellants argued that the transfer of technical know-how should be classified as "Intellectual Property Service" rather than "Consulting Engineer's Service" as recognized under the Finance Act, 1994.

Issue 2: The Tribunal considered the distinction between "Consulting Engineer's Service" and "Intellectual Property Service." It was argued that even after the introduction of 'Intellectual Property Service' as a taxable service, 'Consulting Engineer's Service' continued to be on the statute book. The Tribunal analyzed the definition of 'Consulting Engineer's Service' as a service rendered in the form of advice, technical assistance, or consultancy by a professionally qualified engineer or firm of engineers in one or more disciplines of engineering. It was emphasized that the burden to show that the service was rendered by a professionally qualified engineer or engineering firm had not been discharged in this case. The Tribunal concluded that the transfer of technical know-how is distinct from the services provided under 'Consulting Engineer's Service.'

Issue 3: The Tribunal further deliberated on whether the transfer of technical know-how should be classified under 'Intellectual Property Service' instead of 'Consulting Engineer's Service' for the purpose of levy of Service Tax under the Finance Act, 1994. It was established that transfer of technical know-how is not to be treated as 'Consulting Engineer's Service.' Therefore, the appeal filed by the assessee was allowed, and the impugned order demanding Service Tax on the grounds of 'Consulting Engineer's Service' was set aside. The Tribunal clarified that the two services, namely 'Consulting Engineer's Service' and 'Intellectual Property Service,' are distinct and different, and the transfer of technical know-how falls under the latter category.

In conclusion, the Appellate Tribunal ruled in favor of the appellants, allowing the appeal and setting aside the demand for Service Tax on the grounds of 'Consulting Engineer's Service,' determining that the transfer of technical know-how should be classified under 'Intellectual Property Service' instead.