2014 (8) TMI 191 - AT - Service Tax

CESTAT Kolkata: Applicant's Appeal Denied in Service Tax Case

SICPA INDIA PVT. LTD. Versus COMMISSIONER OF CUS., C. EX & ST., SILIGURI

The Appellate Tribunal CESTAT KOLKATA ruled against the applicant in a case concerning waiver of pre-deposit of Service Tax and penalties. The Tribunal ... Waiver of pre-deposit - Intellectual Property service - Technical Collaboration Agreement - transfer of know-how - Right to use Technical information as well as Patents - Held that:- the transfer of know-how as per the Technical Agreement was not on one time basis but was on continual basis and was to be transmitted to enable the applicant to manufacture the products on continual basis. - the principle of law laid down by this Tribunal in the case of Modi-Mundipharma Pvt. Ltd. [2009 (4) TMI 113 - CESTAT, NEW DELHI], is not applicable to the facts and circumstances of the present case. As regards the abatement for R & D. Cess paid for correct computation of the liability, we find that the applicant has not been able to substantiate their claim of incorrect computation of liability. Further, the aspect of limitation of time is a mixed question of fact and law, which will be considered at the time of regular hearing. However, prima facie, we agree with the learned Advocate for the applicant that prior to insertion of Section 66A of the Finance Act, 1994 i.e., with effect from 18-4-2006, Service Tax for the amount of ₹ 31.65 lakh (approx.) is not payable - applicant directed to make a pre-deposit of 25% of the Service Tax amount - stay granted partly. Issues:1. Waiver of pre-deposit of Service Tax under Section 73(2) of the Finance Act, 1994 and penalty under Section 78.2. Whether the activity of the applicant falls under IPR service.3. Whether the transfer of know-how and technical information constitutes an 'Intellectual Property Service'.4. Liability of Service Tax on services provided by SICPA Holding Switzerland.5. Abatement for R & D Cess paid for correct computation of liability.6. Limitation aspect regarding the time of taxable event.7. Financial hardship plea and balance of convenience.Issue 1: Waiver of pre-deposit of Service Tax and penalty under the Finance Act, 1994:The applicant sought waiver of pre-deposit of Service Tax and penalties. The Department issued a show-cause notice for demand of Service Tax and penalties, which were confirmed by the Commissioner. The Tribunal found that the applicant failed to establish a prima facie case for total waiver of pre-deposit due to lack of evidence substantiating financial hardship. The balance of convenience favored the Department, directing the applicant to make a pre-deposit of 25% of the Service Tax amount within eight weeks, with non-compliance leading to dismissal of the appeal.Issue 2: Classification of applicant's activity under IPR service:The Department concluded that the applicant's activity falls under IPR service as defined under the Finance Act, 1994. This determination was based on the Technical Collaboration Agreement between the applicant and M/s. SICPA Holding Switzerland, where the applicant was granted the right to use technical information and patents, leading to the demand for Service Tax and penalties.Issue 3: Transfer of know-how and technical information as 'Intellectual Property Service':The applicant contended that the transfer of know-how does not constitute 'Intellectual Property Service' under the Finance Act, 1994. They argued that know-how is confidential information and not an Intellectual Property Right, thus not falling under the taxable service category. The Tribunal, however, found that the transfer of technical information and know-how by SICPA Holding Switzerland to the applicant was continual and enabled the applicant to manufacture products, making them liable for Service Tax.Issue 4: Liability of Service Tax on services by SICPA Holding Switzerland:The Tribunal held that the applicant is liable for Service Tax on the services provided by SICPA Holding Switzerland, as per the terms of the Technical Collaboration Agreement. The agreement granted the applicant exclusive technical information and patents, making them subject to Service Tax on the services received.Issue 5: Abatement for R & D Cess for correct computation of liability:The Tribunal noted that the applicant failed to substantiate their claim for abatement of R & D Cess paid for the correct computation of liability. The lack of disclosure of the total royalty paid hindered the applicant's argument for incorrect computation of liability.Issue 6: Limitation aspect regarding the time of taxable event:The Tribunal considered the limitation aspect as a mixed question of fact and law. They agreed that prior to the insertion of Section 66A of the Finance Act, 1994, Service Tax for a specific period was not payable, following the decision of the Bombay High Court. The demand for that period was to be deducted from the total Service Tax liability, affecting the time of taxable event.Issue 7: Financial hardship plea and balance of convenience:The applicant pleaded financial hardship but failed to provide evidence to support their claim. The Tribunal, citing a previous High Court decision, found the balance of convenience favored the Department. Consequently, the applicant was directed to make a pre-deposit within a specified timeline, with non-compliance leading to dismissal of the appeal.This detailed analysis covers the various issues involved in the legal judgment delivered by the Appellate Tribunal CESTAT KOLKATA.