Foreign company payments not taxable as Consulting Engineering Service under Service Tax. Penalty and interest set aside.

The Tribunal upheld the first appellate authority's decision that payments for technical knowhow, inspection charges, and royalty to a foreign company did not fall under Consulting Engineering Service for service tax liability. Citing relevant case law and the classification of such services under 'Intellectual Property Service,' the Tribunal rejected the Revenue's appeal. The penalty and interest imposed were set aside, aligning with the ruling on service tax liability.

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Issues: Service tax liability on payment towards technical knowhow, inspection charges, and royalty charges paid to a foreign company.

Analysis:
The appeal was filed by the Revenue against the Original Impugned Order (OIO) demanding service tax on the services received by the appellants from a foreign company. The services in question were related to technical collaboration agreement and royalty paid to the foreign company. The adjudicating authority considered the services as taxable under the category of 'Consulting Engineer' and imposed a demand for service tax, penalty, and interest. The first appellate authority set aside the OIO and allowed the appeal filed by the assessee.

The main issue in this case was whether the payment made by the appellants towards technical knowhow, inspection charges, and royalty to the foreign company fell under the category of Consulting Engineering Service for the purpose of service tax liability. The first appellate authority analyzed the facts and concluded that the payment made by the appellants was for the transfer of intellectual property rights, technical information, and know-how, and not for any consultancy or advice. Citing relevant case laws, the authority held that royalty payments for the use of technology or know-how do not amount to a payment for services rendered and cannot be equated with consulting engineer services. The authority also noted that the Government specifically covered such services under 'Intellectual Property Service' for levy of service tax. Therefore, the technical knowhow provided by the foreign company was not liable to service tax under consulting engineering service for the period in question.

The Tribunal found that the first appellate authority's decision was in line with the judgment of the Hon'ble High Court of Gujarat in a similar case. The Tribunal upheld the decision of the first appellate authority, stating that the impugned order was legally sound and did not have any infirmity. Consequently, the appeal filed by the Revenue was rejected, and the penalty and interest imposed were set aside in line with the decision on the service tax liability issue.

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