Royalty payment for technology transfer not taxable as service under Service Tax rules.

The appeal involved a dispute over whether royalty payment for technology transfer constituted a taxable service attracting Service Tax. The appellants, engaged in a technical collaboration, contested the Service Tax imposition, arguing that the transfer of technology did not involve Engineering Consultancy Service. Citing precedents and examining the definition of "Engineering Consultancy Service," the court determined that royalty payment was for the use of property, not a service. As such, the demand for Service Tax was deemed unsustainable, the penalty was set aside, and the appeal was allowed, overturning the initial order.

---

---

Issues involved:
The issue involved in this case is whether the payment of royalty by the appellants to M/s. KKK for the transfer of technology constitutes a taxable service attracting Service Tax.

Summary:

1. The appellants, manufacturers of Turbo Charger and parts, entered into a technical collaboration with M/s. KKK, agreeing to pay royalty at 3% on the sale price of the licensed product. The department sought to levy Service Tax on this royalty payment at 5%, which was contested by the appellants on the grounds that no consultancy service was involved in the technology transfer.

2. The main contention in the appeal was that the transfer of technology did not involve Engineering Consultancy Service as claimed by the Department. The appellant relied on precedents such as Navinon Ltd. v. CCE and Bajaj Auto Ltd. v. CCE to support their argument.

3. The JDR supported the findings of the Commissioner (Appeals) and highlighted that transfer of technology had been recognized as a taxable service in the form of "Engineering Consultancy."

4. Upon review of the records and submissions, it was found that the definition of "Engineering Consultancy Service" during the relevant period did not encompass the transfer of technology as an intangible service. Precedents like Navion Ltd. and Bajaj Auto Ltd. were cited to establish that royalty payment was not for a service but for the use of property. The decision in the case of Aviat Chemicals Pvt. Ltd. was also referenced to emphasize that no consultancy or advice was involved in the transfer of intangible property.

5. Consequently, the demand for Service Tax on the royalty paid for the transfer of technology was deemed unsustainable. The penalty imposed on the appellant was also set aside, and the appeal was allowed, overturning the impugned order.

---