2006 (12) TMI 57 - AT - Service Tax

Tribunal rules technical know-how supply not taxable as consulting services

Hindustan Hardy Spicer Ltd. Versus Commissioner of Central Excise, Nasik

The Tribunal ruled in favor of the appellants, holding that the supply of technical know-how and royalty paid for it should not be taxable as consulting ... Demand and Penalty – Alleged that appellant were liable to pay service tax on the technical know-how received from their foreign supplier for manufacture purpose and accordingly demand were made alongwith interest and penalty – Held that appellant not entitle to pay tax and accordingly set aside the order Issues: Liability to pay service tax on technical know-how, imposition of penalty under sections 76 and 77, applicability of previous decisions on similar cases.Liability to pay service tax on technical know-how:The appellants were receiving technical know-how from a foreign supplier for manufacturing goods in India. The Assistant Commissioner held them liable to pay service tax, which was confirmed along with interest and penalties by the Commissioner. The Ld. Advocate for the appellant argued that the supply of technical know-how and royalty paid for it should not be taxable as consulting engineering services, citing previous decisions by CEGAT. The Tribunal agreed with the appellant, stating that tax was not payable based on the decisions referred to. The Tribunal upheld the original order of the Assistant Commissioner, setting aside the penalty imposed by the Commissioner.Imposition of penalty under sections 76 and 77:The Assistant Commissioner had imposed a penalty of Rs. 25,000 under section 76 and Rs. 1,000 under section 77. The Commissioner enhanced the penalty to Rs. 59,132 under section 76. The appellant contended that since they incorrectly paid the service tax based on the previous decisions, the question of enhancing any penalty did not arise. The Tribunal found the appellant's contention to be correct and set aside the enhanced penalty imposed by the Commissioner, restoring the original order of the Assistant Commissioner.Applicability of previous decisions on similar cases:The appellant relied on decisions by the Tribunal in cases involving the recipient of technical know-how from foreign companies against payment of royalty, where it was held that they were not liable to service tax. The Tribunal agreed with this argument, stating that the tax was not payable by the appellants as per the decisions referred to. Consequently, the Tribunal set aside the penalty enhancement by the Commissioner and upheld the original order of the Assistant Commissioner.