Technology transfer agreement treated as consulting engineering on a prima facie basis, limiting pre-deposit relief and requiring conditional deposit.

An agreement for transfer of technology, technical know-how and related assistance was examined to determine whether the consideration was for mere know-how transfer or for consulting engineering services. On a prima facie reading, the continuing supply of technical documents, assistance and advice for setting up and standardising manufacture supported classification as consulting engineering. Reliance on the cess-paid technology transfer exemption did not, by itself, remove the substantial tax and penalty exposure for pre-deposit purposes. Waiver of the entire pre-deposit was declined, but conditional interim protection was granted subject to deposit of Rs. 50,00,000 within eight weeks, with waiver of the balance on compliance.

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Issues: Whether the appellant was entitled to waiver of pre-deposit and interim stay against the demand of service tax and penalties, where the agreement showed transfer of technology, technical know-how and related assistance and the exemption notification for cess-paid technology transfer was relied upon.

Analysis: The agreement granted a licence to manufacture licensed products using know-how, patents and confidential technical information, with continuing technical documents, assistance and advice for establishing and standardising manufacture. On a prima facie reading, these clauses supported the view that the consideration was not merely for transfer of know-how simpliciter, but that the services rendered were of the nature of consulting engineering. The exemption available under the notification issued under section 93(1) of the Finance Act, 1994, in relation to services provided by a consulting engineer on transfer of technology, was also noted, but the existence of cess payment did not by itself eliminate the substantial tax and penalty liability for the purpose of pre-deposit.

Conclusion: Waiver of the entire pre-deposit was declined, but conditional interim protection was granted on deposit of Rs. 50,00,000 within eight weeks, with waiver of the balance pre-deposit on compliance.

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