Royalty for transfer of know-how not taxable as consulting engineering service absent proof of identifiable taxable service.

Royalty and technical know-how fees paid to a foreign collaborator were held not liable to service tax as consulting engineering services where the agreement, read as a whole, showed a transfer of know-how and technology rather than an identifiable consulting engineer-client arrangement. The Tribunal found no reliable evidence that the royalty represented consideration for taxable services, and the show cause notice and appeal did not establish any quantified service element distinct from the royalty payments. Technical clauses in the agreement were insufficient to attract service tax on the facts proved, so the demand and penalties were not sustained.

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Issues: Whether royalty and technical know-how fee paid to a foreign collaborator under the agreement was chargeable to service tax as consideration for consulting engineering services.

Analysis: The agreement was examined as a whole and the payment structure was found to be in the nature of royalty for transfer of know-how and technology rather than consideration for identifiable consulting engineer services. The Revenue did not produce reliable evidence to show that the royalty represented payment for taxable services, nor did the show cause notice or appeal establish any quantified service element distinct from the royalty payments. The agreement referred to various technical activities, but the dominant character of the transaction was held to be transfer of know-how involving intellectual property and not a consulting engineer-client arrangement. The cited service tax provisions were therefore not attracted on the facts proved before the Tribunal.

Conclusion: The royalty payments were not liable to service tax as consulting engineering services, and the demand could not be sustained.

Final Conclusion: The appeal by the Revenue was dismissed, and the order setting aside the service tax demand and penalties was upheld.

Ratio Decidendi: Royalty paid for transfer of technology or know-how, when not shown by evidence to be consideration for a taxable service, is not chargeable to service tax merely because the underlying agreement contains technical clauses.

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