Tax Tribunal Rules Against Revenue in Service Tax Classification Disputes

The Tribunal dismissed the Revenue's appeals in both cases (ST/242/05 and ST/253/05) concerning the classification of services received from abroad under "Consulting Engineers Service" and the liability of royalty paid under service tax. In the first case, it was held that designs and drawings are goods not subject to service tax, rejecting the Revenue's argument. In the second case, the Tribunal ruled that technical know-how received did not fall under "Consulting Engineer's Service," based on previous decisions and a High Court ruling. Consequently, both appeals were dismissed for lack of merit.

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Issues:
1. Classification of service received from abroad under "Consulting Engineers Service"
2. Liability of royalty paid under service tax

Issue 1: Classification of service received from abroad under "Consulting Engineers Service"

In the first appeal (ST/242/05), the Revenue filed an appeal against the lower appellate authority's decision regarding the classification of services received by the appellant from abroad under "Consulting Engineers Service." The Revenue argued that the service should be classified as such, making the royalty paid by the appellant liable to service tax. The lower appellate authority, however, based on previous Tribunal decisions, held that the services were not liable to service tax under this category. The Revenue contended that the supply of designs and drawings constituted technical advice, thus creating a service tax liability. The respondent, on the other hand, cited various Tribunal decisions where designs and drawings were considered goods assessable to Customs duty, thereby exempt from service tax. The Tribunal, after considering the arguments from both sides and the precedent cases, upheld the lower appellate authority's decision, stating that designs and drawings are goods and not subject to service tax, ultimately dismissing the appeal filed by the Revenue.

Issue 2: Liability of royalty paid under service tax

In the second appeal (ST/253/05), the appellant received technical know-how from a foreign entity for which they paid royalty. The Revenue sought to classify this activity under "Consulting Engineer's" service and demanded payment along with penalties. The lower appellate authority set aside the demands, citing previous Tribunal decisions and a High Court ruling that technical know-how supply from a foreign principal did not constitute consulting engineer service. The appellant argued that the technical know-how received was related to the production process, format, and technology for manufacturing products in India, and they paid royalty for this purpose. The Tribunal, considering the submissions from both sides and the previous rulings, concluded that the supply of technical know-how did not fall under "Consulting Engineer's Service." They referenced various Tribunal decisions and a High Court judgment supporting this view, ultimately dismissing the Revenue's appeal due to lack of merit.

In conclusion, the Tribunal found no merit in the appeals filed by the Revenue in both cases and dismissed them as devoid of merits.

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