9911796707
TMI Blog2020 (12) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... hich details clearly indicate that the amount was paid to compensate Honda Japan for the research and allied work it had performed at its end and not towards supply of any technical information to the appellant. In the absence of any evidence to the contrary, the Commissioner (Appeals) could not have concluded that the aforesaid amount was paid by the appellant to Honda Japan for rendering any taxable service. It is, therefore, not possible to accept the contention of the learned authorized representative of the Department that in terms of Article 4.1 of the Technical Agreement, Honda Japan was required to furnish technical information to the appellant on a continuous basis or that the amount was paid for the commencement of the production. It has also been submitted by the leaned counsel for the appellant that the amount paid by the appellant to Honda Japan is actually in the nature of a cancellation fee and, therefore, neither any service was rendered by Honda Japan to the appellant nor any amount was paid for any service. The contention is that the amount was paid by the appellant only to restitute Honda Japan for the cost incurred, once the Model Agreement to provide the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odel Agreement was terminated on March 30, 2012 by a Model Termination Agreement [ the Termination Agreement ] . In terms of clause 3 of this Termination Agreement, the appellant paid an amount of Japanese Yen [JPY ] 130,000,000/- to Honda Japan to compensate all costs, expenses and non-cancellable commitments incurred by Honda Japan till then. This amount, according to the appellant, was paid to compensate for the following: i. Research and development already undertaken by Honda Japan; ii. Cost of Manpower assigned to the project; iii. Overseas business trip expenses; iv. Domestic business trip expenses; and v the Administrative costs incurred 4. According to the Department, the appellant received services from Honda Japan for the New Honda Civic Project and the payments made by the appellant to Honda Japan were in the nature of consideration for these services. For this reason, a show cause notice was issued to the appellant on October 29, 2013 alleging that the amount paid by the appellant to Honda Japan was susceptible to service tax on a reverse charge basis under the category of consulting engineer services defined under section 65(31), which is taxable under section 65(105) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant filed a reply dated July 7, 2014 to the aforesaid show cause notice contending that the appellant had not received any service from Honda Japan and, therefore, no service tax was payable on the termination fee paid to Honda Japan. After making reference to the Technical Agreement, the Model Agreement and the Termination Agreement, the appellant stated as follows: A.9 A combined reading of the Model Agreement and the TCA shows that the Noticee was to receive technical information and know-how with respect to the full model changes for the CIVIC model in the form of drawings, specifications, engineering standards etc. (as mentioned in Article 1 of TCA). A.10 The noticee decided to terminate the decision to launch the full model change of HONDA CIVIC model even before its completion of Design Drawing etc by Honda Japan. So the services which otherwise would have availed in the form of Consultancy engineers, Intellectual property Rights for the purpose of execution/ implementation of those Design drawings to the Noticee in India have not even started. A.11 It is submitted that the decision to launch the full model change of CIVIC was withdrawn in March 2012 an accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alified engineering or any body corporate or any firm (ii) Consulting Engineering should render advice, consultancy or technical assistance to any person. 4.8 In the instant case M/s Honda Japan from whom the noticee had received the service, is a body corporate and M/s Honda Japan had rendered advice or technical assistance to the notice as discussed hereinabove para. 4.9 Therefore, and in view of my observation recorded in preceding para, I fail to find any legal force in noticee's argument that the services which they have received, is consulting engineering Service Tax. I therefore, hold that the department has correcting classified the Service received by the noticee, under Consulting Engineering Service, 4.10 Next issue before me to decide as to whether the service tax amount to ₹ 82,27,486/- to be recovered under section 73(1) of the Finance Act 1994. In this regard, the noticee placed an argument that the provision of service received by them before the introduction of the taxable service of consulting engineer In furtherance of this plea, they placed reliance on the judgment of Hon'ble Tribunal in Hindustan Colar Ltd. Vs CCE already STR 845 (Tr. Mumbai). This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Technical Agreement which stipulate provision of technical information. The notice also discusses the taxing provisions for consulting engineer service. Thereafter, the notice directly alleges that the appellant is liable to pay service tax on the amount paid under the Termination Agreement, without identifying or specifying any consulting engineer service which was actually rendered by Honda Japan to the appellant; (iv) The amount received was in the nature of reimbursement of expenses, which is not subject to service tax; (v) No demand can be made under the category of consulting engineer services; and (vi) In the absence of any mala fide on the part of the appellant, the extended period of limitation could not have been invoked and so the demand is not imposable. 10. Shri Vivek Pandey learned Authorized Representative of the Department made the following submissions: (i) Neither the agreements nor the invoice use the term reimbursement ; (ii) Compensation is different from reimbursement. Compensation is for such service , while reimbursement may be not; (iii) Technical Information is not Intellectual Property Right and is classifiable under consulting engineer service; (iv) Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text, the following capitalized terms as used in this Agreement, whether used in the singular or plural, shall have the respective meanings as defined below: 1. The tem Products shall mean the specific models and types of Honda-branded automobiles, being currently manufactured by the LICENSEE, hereinafter called the Existing Models , and such additional models and types, which may, from time to time, be decided, as agreed upon by the parties hereto, in writing, in a Model Agreement and shall cover; (a) Full Model Changes (FMCs) being variants of the Existing Models , involving major changes, including but not limited to, the appearance, design, specifications or process of manufacture of the automobiles, and agreed between the parties to be an FMC. ***** 6. The term Technical Information shall mean the certain secret know-how and technical information (except for the Intellectual Proper Rights), whether in writing or not, including but not limited to (i) drawings, specifications, materials lists, direction maps (explanatory drawings) and test reports which directly relates to the Products or the Licensed Parts themselves and (ii) engineering standards and quality standards of LICEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CENSOR a Royalty on all Products and Export Parts, while this Agreement is effective. The rate of royalty for the Products payable by LICENSEE to LICENSOR shall be as under: (a) On Domestic Sales: Five Percent (5%) net remittable to LICENSOR, after deduction from the Gross rate, the applicable withholding taxes, which shall be additionally borne and deposited by LICENSEE on behalf of LICENSOR (b) On Export Sales: Five Percent (5%) net remittable to LICENSOR, after deduction from the Gross rate, the applicable withholding taxes, which shall be additionally borne and deposited by LICENSEE on behalf of LICENSOR ****** The royalty shall be payable during the term of this Agreement for each Existing Model and the Export Part therefore, and from the date of commencement of Commercial Production for each New, FMC and for MMC Model and the Export Parts therefor. 14. The parties decided to launch a Full Model Change of the existing Civic car and, therefore, a Model Agreement was entered into between the parties on April 1, 2010. The relevant clauses of the Model Agreement are reproduced below: MODEL AGREEMENT WHEREAS, LICENSOR and LICENSEE entered into a Technical Collaboration Agreement da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Model Agreement without the commencement by LICENSEE of the volume production of the Products and LICENSOR accepts as an exceptional case such LICENSEE s request if LICENSEE compensates all costs, expenses and non-cancelable commitments incurred by LICENSOR for the work towards the commencement of volume production of the Products by LICENSEE up to the date of cancellation of the Model Agreement, NOW, THEREFORE, LICENSOR and LICENSEE hereby agree as follows: 1. LICENSOR and LICENSEE agree to terminate the Model Agreement as of the 30th day of March,2012. 2. LICENSOR and LICENSEE agree and confirm that the invoices, if any, covering the model fee for the Products issued by LICENSOR become null and void. 3. LICENSEE agrees to compensate the LICENSOR for following amount to agreed to by the LICENSOR towards all costs, expenses and non-cancelable commitments incurred by LICENSOR for the work towards the Commencement of the volume production of the Products by LICENSEE up to the date of cancellation of the Model Agreement: One Hundred Thirty Million Japanese YEN (JPY 130,000,000). 16. To give effect to the clauses of the Termination Agreement, an invoice dated March 31, 2012 was issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate the issue it would be pertinent to refer to the relevant clauses of the Technical Agreement, the Model Agreement and the Termination Agreement. 22. A perusal of the clauses of the Technical Agreement would indicate that Honda Japan was in the business of research and development; manufacture and sale of auto-mobiles; and possessed manufacturing information and know-how. The appellant desired to obtain a license and technical information from Honda Japan for the manufacture and sale of certain automobiles. Accordingly, Honda Japan expressed its willingness to give such a license and provide the technical information. Technical Information has been defined to mean certain secret know-how and technical information, including drawings, specifications, material list, direction map and test reports which directly relate to the product. In consideration of the furnishing of the technical information, the appellant had to pay Honda Japan a fee called Model Fee . The Model Fee payable for each New or Full Model Change of the product was JPY 800,000,000 payable in two equal installments. In consideration of the rights and license granted to the appellant, a royalty on all the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant filed a reply to the show cause notice clearly pointing out that the decision to launch the Full Model Change of Honda Civic model was terminated before any information/advice/ drawing could be supplied to the appellant by Honda Japan and, therefore, the appellant had not received any service from Honda Japan with regard to the launching of the Full Model Change of the new Civic Car. Thus, as advice, consultancy or technical assistance was not provided by Honda Japan to the appellant, there is no question of rendering any consulting engineer service to the appellant. 27. The charge leveled against the appellant, in the show cause notice, that JPY 130,000,000/- was paid towards the first installment mentioned in the Technical Agreement/ Model Agreement amounting to JPY 400,000,000/- is factually incorrect. As noticed above, JPY 130,000,000/- was paid by the appellant to Honda Japan in terms of the Termination Agreement to compensate Honda Japan towards the cost, expenses and non-cancellable commitment incurred by Honda Japan towards the commencement of the volume production of the Product by the appellant upto the date of cancellation of the model agreement. This amount wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honda Japan and, therefore, the Termination Agreement cannot undo the technical information already provided by Honda Japan. In this connection the learned Authorized Representative of the Department has also made reference to the amount to JPY 400,000,000/- that was required to be paid in terms to the Model Agreement/ Termination Agreement towards the first installment. 31. This submission of the learned authorized representatives of the Department cannot be accepted. As discussed above, JPY 400,000,000, was not paid towards the first installment contemplated under the Agreement. JPY 130,000,000/- was paid by the appellant to Honda Japan against the invoice dated March 31, 2012 that was raised by Honda Japan in terms of the Termination Agreement dated March 30, 2012. The Department has assumed that some technical information must have been provided by Honda Japan to the appellant between May 31, 2011 (when the Model Agreement was executed) and March 30, 2012 (when the Termination Agreement was executed). This assumption is not based on facts and even the show cause notice does not identify or specify any such technical assistance which may have been rendered by Honda Japan to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations are as follows: 7. Regarding the tax liability on the consideration received due to termination of the arrangement, we note that no identifiable service can be attributed for such consideration. It is rather a termination of arrangement which itself the original authority held as a service. We note that by terminating the arrangement, the appellants are adversely put to certain business loss. The consideration has been paid for such loss. No identifiable service could be attributed for such payment during the material time. 36. In Lemon Tree, the Tribunal again held that the amount retained after cancellation cannot be subjected to service tax. The observations are as follows: 5. Admittedly, the customers pay an amount to the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value. The amount retained by the appellant is for, as they have kept their services available for the accommodation, and if in any case, the customers could not avail the same, thus, under the terms of the contract, they a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
