2011 (4) TMI 1086 - HC - Service Tax

High Court rules in favor of assessee on service tax liability appeal

The High Court ruled in favor of the assessee in an appeal challenging the Tribunal's order on service tax liability. The Court held that the payment made ... Liability to pay service tax as a question of rate of duty/tax - jurisdictional bar under Section 35G relating to determination of rate of duty or value - exclusive appellate jurisdiction of the Supreme Court under Section 35LLiability to pay service tax as a question of rate of duty/tax - jurisdictional bar under Section 35G relating to determination of rate of duty or value - exclusive appellate jurisdiction of the Supreme Court under Section 35L - High Court's jurisdiction to adjudicate the revenue's appeal challenging Tribunal's finding that no service tax was payable under the agreements - HELD THAT: - The dispute as to whether the sums paid under the technology/usage agreements attract service tax is, in substance, a determination of the rate of duty/tax. Such a question falls within the exception carved out by Section 35G as an order 'relating... to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.' Consequently the High Court lacks jurisdiction to entertain the appeal. The proper forum for challenging the Tribunal's determination on this rate/value question is the Supreme Court by way of appeal under Section 35L. Applying this jurisdictional principle, the appeal before the High Court is not maintainable and must be rejected, while leaving the revenue free to approach the Apex Court. [Paras 4, 5]Appeal rejected as not maintainable for want of jurisdiction; liberty reserved to the revenue to approach the Supreme Court and registry directed to return certified copies to the Department.Final Conclusion: The High Court held that the question whether service tax is payable under the agreements is a determination as to the rate/value falling within Section 35G, and therefore the High Court has no jurisdiction; the appeal is rejected as not maintainable with liberty to the revenue to prefer an appeal to the Supreme Court under Section 35L. Issues:1. Appeal challenging Tribunal's order on service tax liability.2. Interpretation of agreement for technology transfer and service tax implications.3. Jurisdiction of High Court to decide on rate of duty/tax issue.Issue 1: Appeal challenging Tribunal's order on service tax liabilityThe High Court heard an appeal where the revenue challenged a Tribunal's order stating that the assessee was not liable to pay service tax. The assessee, a company, entered into an agreement with a foreign company for technology transfer and paid a sum for the same. The revenue issued a show cause notice for service tax, which the assessee contested, claiming the payment was for moulds usage and not technology transfer. The Assistant Commissioner dropped the proceedings, but the Commissioner disagreed and levied service tax, interest, and penalty. The Tribunal, in line with previous judgments, ruled that the activity did not fall under Consulting Engineer services, hence no service tax was due. The revenue appealed against this decision.Issue 2: Interpretation of agreement for technology transfer and service tax implicationsThe crux of the matter was whether the payment made by the assessee to the foreign company was for technology transfer or moulds usage charges. The assessee argued that the payment was for the usage of moulds received from the foreign company to manufacture products primarily for the foreign company's global requirements. They contended that the payment was not for technology transfer but for the moulds' utilization, which did not fall under Consulting Engineer services as per the definition. The Assistant Commissioner initially dropped the proceedings, but the Commissioner reversed this decision, leading to the appeal before the Tribunal, which ruled in favor of the assessee.Issue 3: Jurisdiction of High Court to decide on rate of duty/tax issueThe High Court, while considering the appeal, noted that the question of whether the assessee was liable to pay service tax fell within the exception under Section 35G, which pertains to the determination of the rate of duty or tax. Citing a previous judgment, the High Court held that it did not have jurisdiction to decide on such issues, and the appeal should be directed to the Apex Court under Section 35L of the Central Excise Act, which has exclusive jurisdiction over such matters. Consequently, the High Court rejected the appeal as not maintainable, allowing the revenue to approach the Apex Court and directed the registry to return the certified copies of the orders to the Department for further action.