Service tax on foreign technology transfer depended on the date of receipt, so a later royalty payment did not create liability.

Service tax liability for technical know-how received from a foreign company was required to be tested by reference to the date the service was received, not the date the royalty was paid. Because the technology transfer was received in May 1997, when neither Consulting Engineer's Service nor transfer of intellectual property was taxable, the demand could not be sustained. The later payment in September 2002 did not alter the tax position, and service tax was therefore not leviable on the royalty.

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Issues: Whether service tax was leviable on royalty paid for technical know-how received from a foreign company, and whether taxability had to be determined with reference to the date of receipt of the service.

Analysis: The service in question was the transfer of technology by the foreign company, received in May 1997, while the royalty was paid only in September 2002. For determining service tax liability, the relevant date was the date on which the service was received, not the date on which the consideration was paid. On the relevant date, neither Consulting Engineer's Service nor transfer of intellectual property was a taxable service. The demand could not be sustained by treating the payment date as the point of taxation.

Conclusion: Service tax was not leviable on the royalty paid for the service received in May 1997, and the demand was unsustainable.

Ratio Decidendi: Tax liability for a service is determined with reference to the date on which the service is received, and no tax can be levied if the service was not taxable on that date.

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