Appellant liable for interest on delayed service tax payment due to R&D cess deduction. Deposit within 8 weeks.

The tribunal held the appellant liable to pay interest for delayed service tax payment due to R&D cess deduction. The appellant was directed to deposit the interest within eight weeks, with a waiver of pre-deposit and stay against recovery of balance dues for 180 days, subject to compliance.

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Issues:
1. Liability to pay service tax on transactions with associated enterprises on accrual basis.
2. Deductibility of R&D cess paid from service tax liability.
3. Delayed payment of service tax due to R&D cess deduction.

Analysis:
1. The appellant entered into a Technical Collaboration Agreement (TCA) with a foreign company, necessitating payment for design and development charges, technician fee, and royalty. Following the insertion of reverse charge levy under Section 66A of the Finance Act, 1994, the appellant started paying service tax on consideration paid to the foreign company under the TCA. The liability to pay service tax on transactions with associated enterprises was shifted to an accrual basis from 10.5.2008, as per Rule 6(1) of the ST Rules, 1994. The appellant contended that the services were classified under 'Intellectual Property Right' service, as per relevant sections and exemption notification.

2. Under the Research and Development Cess Act, 1986, R&D cess is required to be paid on technology imports, payable to RBI before making any payments. Exemption Notification No. 17/2004-S.T. allowed deduction of R&D cess from service tax. The appellant argued that a mismatch arose due to the requirement to pay service tax on book entry with R&D cess payment mandated only upon foreign exchange payment. The appellant claimed that the legislative intent was to allow deduction, but the tribunal disagreed. The tribunal highlighted that the notification and statutes were clear, allowing only for deduction of R&D cess paid, and the appellant could have paid the cess before making payments for technology imports.

3. The tribunal found that the appellant's procedure resulted in a short payment of service tax due to R&D cess deduction. It concluded that the appellant had no prima facie case for deduction and noted the consequences of the procedure followed. As a result, the tribunal held the appellant liable to pay interest for delayed service tax payment due to R&D cess deduction. The appellant was directed to deposit the interest within eight weeks, with a waiver of pre-deposit and stay against recovery of balance dues for 180 days, subject to compliance.

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