2006 (12) TMI 54 - AT - Service Tax

Appellate Court Modifies Order on Service Tax Appeal, Excludes 'Know-How' - Consulting Engineer Services Remain Taxable

The appellate court partially allowed the appeal, modifying the order to exclude consideration for licensing 'know-how' from the service tax demand. The ... Consulting Engineer – Alleged that appellant company availed foreign Consulting Engineer Services and accordingly service tax demanded – Authority allow the appeal partly and matter remanded for quantification of liability. Issues Involved:1. Liability of service tax on consulting engineer services availed from a foreign entity.2. Nature of the transaction: whether it pertains to transfer of intellectual property (know-how) or provision of consulting engineering services.3. Validity of the show cause notice issued for recovery of service tax.4. Apportionment of consideration between licensing rights and technical assistance.Issue-wise Detailed Analysis:1. Liability of Service Tax on Consulting Engineer Services:The appellant, an Indian company, availed consulting engineer services from HALDOR TOPSOE of Denmark. The adjudicating authority confirmed the demand for service tax amounting to Rs. 14,26,231/- under Section 73 of Chapter V of the Finance Act, 1994. The services included advice, consultancy, and technical assistance, which were taxable under the category of consulting engineer services as per the Government circulars and clarifications.2. Nature of the Transaction:The appellant contended that the agreements with HALDOR TOPSOE were for the transfer of 'know-how' and not for consultancy services. They argued that the transaction dealt with intellectual property and not with any service. However, the adjudicating authority and the Appellate Commissioner found that the agreements included not only the transfer of technical information but also the provision of engineering services and technical assistance. The agreements stipulated the supply of an Engineering Design Package (EDP) and technical assistance in India, which were taxable under consulting engineer services.3. Validity of the Show Cause Notice:The appellant argued that the show cause notice was issued prematurely. However, it was held that since the appellant was not registered for service tax till 2-7-2004, the relevant date for issuing the notice was the date on which the tax was to be paid. The show cause notice was issued within the prescribed time, making it valid.4. Apportionment of Consideration:The agreement was found to be composite, including both licensing rights for 'know-how' and technical assistance. The adjudicating authority and the Appellate Commissioner noted that the technical assistance provided was taxable. The Tribunal directed that the consideration related to licensing of 'know-how' be excluded from the service tax demand, and only the amount related to technical assistance be taxed. The matter was remanded for quantification of the liability, with instructions to apportion the consideration accordingly.Final Order:The impugned order was modified to exclude the consideration related to licensing of 'know-how' from the service tax demand. The remaining amount, related to consulting engineer services, was confirmed as taxable. The appeal was partly allowed, and the matter was remanded for quantification of the liability, directing the Commissioner (Appeals) to work out the difference and reduce the confirmed demand by the part of the consideration amount that related to mere licensing rights.Pronouncement:The judgment was pronounced in the open Court on 26-12-2006.