2004 (8) TMI 2 - AT - Service Tax

No service tax, interest, or penalty for royalty and technology payments; Rule 6(1) proviso and Section 76 cleared

CESTAT held that the appellants had no service tax liability under the agreement for royalty/technology/know-how payments and therefore committed no ... Service tax liability - Foreign company - Meaning of Royalty under contract - Royalty for technology and know-how - TDS - Liability of receiver of service - Person from exterior India - HELD THAT:- Since there was no liability on the appellants, who approached the Department as regards service tax consequent to the agreement, there can be no failure on the part of the appellants in having not filed Service Tax Returns. In view of the fact that the second proviso to Rule 6(1) of the Service Tax was enacted with effect from 28-2-1999, therefore, even there is a liability on the part of the appellants to have discharged the obligations under the Service Tax Law for the period prior to 28-12-1999, the appellants cannot be found to be having any intention of misleading the Department and therefore the charges of suppression with an intention to evade payment of tax cannot be invoked. Since no tax liability on the appellants, there can be no interest liability determined on them. The appellants are not required to discharge any service as consulting engineers under the provisions of the Service Tax Law and/or required to file declaration or have any application for discharge of liability to duty. They are, therefore, not liable for any penalty in terms of Section 76. The order is required to be set aside and appeal allowed. Issues: Recovery of Service Tax, Definition of Consulting Engineer, Liability of Appellants, Royalty Payments, Withholding Tax, Service Tax Returns, Interest Liability, Charges of Suppression, PenaltyThe judgment pertains to an appeal regarding the recovery of Service Tax from the appellant, who made payments to a foreign entity for technical know-how and services. The dispute revolves around whether the payments made qualify as taxable services under the category of 'Consulting Engineer.' The Additional Commissioner confirmed the demand for Service Tax, interest, and imposed a penalty, which was upheld by the Commissioner (Appeals), leading to the current appeal.The agreement between the parties required the appellants to pay royalty for the transfer of know-how and technical assistance, based on the net invoice value of the products manufactured and sold. The definition of a consulting engineer, as provided in the agreement, includes rendering advice or technical assistance in engineering disciplines, which the appellants argue does not apply to the foreign manufacturer.The appellant contests the imposition of Service Tax, arguing that they are not the service provider but the recipient of services provided by the foreign entity. The judgment highlights the provisions of Rule 6(1) of the Service Tax Rules, emphasizing the obligation to pay tax on taxable services received, which the appellants should discharge if liable.The judgment questions the applicability of Service Tax on royalty payments, stating that such payments are typically considered a share of product or profit rather than payment for services rendered. It also rejects the argument that provisions related to withholding tax can be used to impose Service Tax liability on the appellants.Furthermore, it is argued that the appellants had no obligation to file Service Tax returns or discharge any duty as consulting engineers under the Service Tax Law, hence they should not be held liable for any penalty or interest. The judgment concludes by setting aside the lower authorities' orders and allowing the appeal in favor of the appellants.