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TMI Blog2025 (4) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... Plot No.29-31-32, New Industrial Area No.1, Mandideep, Dist. Raisen (MP). The appellants hold Central Excise registration No. AAACC3840KM026, and were clearing the finished goods on payment of appropriate Central Excise duty. The Appellant is also engaged in providing various types of services, including service of testing, erection, installation, works contract, transportation, etc. The appellant successfully bid for a tender floated by M/s. Power Grid Corporation Ltd. [PGCIL], a Government of India Undertaking, in response to the International Competitive Bidding tender floated by PGCIL, for supply of 800 kv Shunt Reactors and 765kv Transformer. The terms of the tender floated by PGCIL required that in case of offer by a foreign bidder, the bidder should have a joint venture arrangement with a local supplier, who should be a lead partner, containing provision for transfer of technology to the local supplier. Therefore, the Appellant entered into Joint Venture agreement with foreign bidders, acting as a lead partner, with JV partners M/s. Ganz Transelektro Electric Co. Ltd. Hungary [hereinafter referred to as 'Ganz'], and with M/s. Zaporozhtransformator, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants to PCIL was issued. The Commissioner, CGST & Central Excise, Bhopal, has adjudicated the case by passing the impugned Order-in-Original No. 14/COMMR/ST/BPL-111/2018 dated 05.07.2018. The present appeal is against the said impugned order. 3. Learned counsel submitted that the MOUs with GANZ and ZTR were entered by the Appellant in July-2008 and July-2009. The manufacture and supply of the goods commenced from 2011. Thus, even if it is assumed that GANZ and ZTR did provide technical knowhow services to the Appellants' the same were provided prior to July, 2012. He submitted that prior to July-2012, no Service Tax was payable on technical know-how service under the category of Intellectual Property Service. Learned counsel stated it was not disputed that the Commissioner has confirmed demand for service tax on technical know-how service, by treating the same as Intellectual Property Service. He submitted that during the relevant period, i.e. prior to July-2012, technology transfer service was not covered within the ambit of Intellectual Property Service. He further submitted that technical know-how service is not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CCEV. Consulting Engineering Services India (P) Ltd. 2013 (30) S.T.R. 586. As the service in the case of Investa Technologies S.A.R.L, was rendered prior 1o 10-9-2004, the date when the taxing entry was brought to the Statute the mere subsequent payment in respect of services that are already being rendered cannot be brought to lax with respect to the rate applicable on the date on which the payment was effected." In view of the above legal position, no Service Tax was liable to be paid by the Appellant and the impugned order deserves to be set aside and quashed. 5. In addition, learned counsel also stated that the Commissioner had erred in confirming Service Tax demand by taking the gross profit margin for the sale of the goods manufactured using the technical know-how, erroneously assuming that the entire gross profit margin is on account of the technical know-how. He submitted that profit margin was a result of various efforts and resources put to use for manufacture of particular goods, including capital, labour, management, finance, etc. Technical know-how was only one of the factors contributing to gross profit margin, as was evident from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible as input service credit for utilization towards discharge of Central Excise duty liability. Thus, payment of Service Tax on reverse charge basis on the value of technical know-how from ZTR and Ganz, and again taking credit of the same, was revenue neutral. Learned counsel stated that it is a settled legal position that when there is revenue neutrality with reference to the assessee himself, then no malafide intention of evasion of taxes can be attributed on the part of assessee and the extended period of limitation cannot be invoked. In support of his contention, learned counsel relied upon the following decisions: (i) Jet Airways Vs. C.S.T.- 2016(44) STR 465 (Tri- Mumbai); (ii) Texyard International Vs. C.C.E.- 2015 (40) STR 322 (Tri-Chennai); (ii) Jain Irrigation Systems Ltd. Vs. C.C.E.- 2015 (40) STR 752 (Tri- Mumbai); (iv) Mercantile & Industrial Dev. Vs. C.C.E.- 2014 (313) ELT 553 (Tri-Ahmedabad); (v) Monga Brother Ltd. Vs. C.C.E.- 2013 (294) ELT 332 (Tri-Del); (vi) C.C.E. Vs. Reclamation Welding Ltd.- 2014 (308) ELT 542 (Tri-Ahmedabad); and (vii) Castrol India Ltd. Vs. C.C.E.- 2014(311) ELT 71 (Tri-Ahmedabad); 8. Learned counsel also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts to the Department and these facts came to the notice of the Department only at the time of investigation as the Appellant was working under self-assessment system, they were bound by service tax law to assess their service tax liability correctly and thereafter file their ST-3 returns properly. Learned Authorised Representative stated that the appellant did not assess the correct amount of service tax and had also not shown the actual amount in the relevant ST-3 returns. They have willfully suppressed the facts from the department with intention to evade the payment of service tax. Therefore, extended period and penalty under section 78 is invokable. In view of the above, he prayed that present appeal may be dismissed. 12. We have heard the learned counsel for the appellant and learned Authorised Representative for the department. The issue before us is to decide the service tax liability on transfer of technical know-how to the appellant. The admitted facts of the case are as follows: 1. Appellant is registered under Central Excise and Service Tax. 2. Appellant entered into Joint Venture agreement with Ganz and ZTR as per the terms of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard. Thereafter, show cause notice dated 13.10.2015 was issued by the Commissioner proposing to add the value of transformers to the assessable value for the purpose of payment of service tax and accordingly proposed to demand differential service tax. The show cause notice was adjudicated by Order-in-Original dated 24.08.2016 confirming the demand of Rs.2,82,92,476/- along with interest by holding that service tax was payable on the total contract price for service of Rs. 25,71,96,000/-, and the service tax of Rs.2,07,37,860 paid was appropriated. The said order was challenged by the Appellant and the Tribunal vide its final order No.51900/2021 dated 03.09.2021 in Appeal No.ST/53026/2016 remanded the matter for computation of service tax, after having held that service tax was not payable on transportation charges; service tax was not payable on training charges; service tax was liable to be paid on installation/erection charges (including civil work) after adjusting the amount of VAT and service tax. Presently, the said matter is pending before the adjudicating authority. 16. We note that despite one round of litigation in respect of the Agreements, DGCEI init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n list, there is, in that, suppression of fact and the authorities were justified in invoking the proviso to section 11A of the Act for demand of duty for the extended period. 14. We have indicated above the facts which make it clear that the question whether M/s. Pharmachem Distributors was a related person has been the subject-matter of consideration of the Excise authorities at different stages, when the classification was filed, when the first show cause notice was issued in 1985 and also at the stage when the second and the third show cause notices were issued in 1988. At all these stages, the necessary material was before the authorities. They had then taken the view that M/s. Pharmachem Distributors was not a related person. If the authorities came to the conclusion subsequently that it was a related person, the same fact could not be treated as a suppression of fact on the part of the assessee so as to saddle with the liability of duty for the larger period by invoking proviso to Section 11A of the Act. So far as the assessee is concerned, it has all along been contending that they were not related persons, so, it cannot be said to be guilty of not filling up the declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al stands disposed of accordingly. There will be no order as to costs." (c) In Hyderabad Polymers (P) Ltd. vs. Commissioner of Central Excise, Hyderabad-2004 (166) ELT 151 (SC), the Hon'ble Supreme Court observed as follows: This Court has in the case of ECE Industries Limited v. Commissioner of Central Excise, New Delhi reported in 2004 (164) E.L.T. 236 (S.C.) held as follows :- "4. In the case of M/s. P & B Pharmaceuticals (P) Ltd. v. Collector of Central Excise reported in [2003 (153) E.L.T. 14 (S.C.) = 2003 (2) SCALE 390], the question was whether the extended period of limitation could be invoked where the Department has earlier issued show cause notices in respect of the same subject-matter. It has been held that in such circumstances, it could not be said that there was any wilful suppression or misstatement and that therefore, the extended period under Section 11A could not be invoked. 5. In our view, the principles laid down in above case fully apply here. As earlier proceedings in respect of same subject-matter were pending adjudication it could not be said that there was any suppression and the extended period under Section 11A was not available." On the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext, it would be pertinent to see the definition of ''Intellectual Property Service' and 'Intellectual Property Rights' which reads as follows: "a) Section 65(55a): "intellectual property right" means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright. b) Section 65(55b): "Intellectual property service means, - (a) Transferring, temporarily; or (b) Permitting the use of enjoyment of, any intellectual property right c) Section 65(105) (zzr) "taxable service" means any service provided or to be provided- ...... "(zzr) to any person, by the holder of intellectual property right, in relation to intellectual property service." 19.1 In this regard when the service was made chargeable to Service Tax, the following clarification was issued vide Circular No. 80/10/2004-ST dated 17.09.2004. "9. Intellectual property services (other than copyrights): 9.1 Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Indian law is only for obtaining protection from its infringement. He observed that the levy of tax is not dependent on the fact of such registration. We find that such conclusion is not legally tenable and is beyond the scope of taxable service as defined in Finance Act, 1994 : "Section 65(105)(zzr) of the Act defines in the taxable IPR service tax as under : "Taxable service" means any service provided or to be provided to any person by the holder of intellectual property right, in relation to intellectual property service; Section 65(55a) of the Act defines 'Intellectual Property Right' to mean as under : "Intellectual Property Right" means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright" 6. The IPR as defined should be a right under any law for the time being in force. The legal position on this issue has been examined by various decisions of the Tribunal which are as under : (a) Rochem Separation Systems (India) Private Limited v. Commissioner of Service Tax, Mumbai I - 2015 (39) S.T.R. 112 (Tri.-Mum.) [para 8]; (b) Whirlpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal held that regarding taxability of appellant in respect supply of tangible goods the date of long term charter agreement will be relevant though the tangible goods were continued to be used even after the introduction of service tax liability on such service. The Tribunal held that the taxable event of supply of tangible goods for use has taken place prior to the introduction of tax on such service; and that though hire charges for the actual use were remitted subsequently and periodically, no service tax is leviable. 7. We find the facts and the legal analyses as made in the above two decisions are applicable to the present case. Here the agreement for grant of license or transfer / permission to use technology was effected before 10.09.2004. The fact that M/s DHPL continued to manufacture and sell using such transferred technology even after the introduction of service tax on IPR cannot be considered as continuous supply of service. The rendering of service is effectively determined by the date of transfer / permission to use technology by M/s Denso, Japan which was prior to the introduction of tax liability on such service." 21. In the case of M/s. Catapro Technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 65(105)(zzr) was not subject to scrutiny by the Tribunal and a reference to technical know-how therein can hardly be adduced as settling the classification of the activity as the taxable service. Per contra, paragraph 9.1 of circular no.B2/8/2004-TRU dated 10th September 2004 of Central Board of Excise & Customs, cited by Learned Counsel for appellant docs amplify the object of tax as intellectual property rights under prescribed laws applicable in India.
8. Such has been the consistent stand of the Tribunal as is evident in decisions in re Tata Consultancy Services Ltd and in re Thermax Ltd in re Indofil Chemicals Company, the Tribunal predicated taxability on the additional requirement of identification of the specific class of intellectual property right that is provided to the recipient. In this too, we notice a lack in the impugned order.
9. The demand is, therefore, without authority of law and we set it aside Appeal is allowed."
22. In view of the above discussions, we are of the considered view that the impugned order is not sustainable and the same is set aside. The appeal is, accordingly, allowed.
(Order pronounced in the open court on 07.04.2025) X X X X Extracts X X X X X X X X Extracts X X X X
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