2016 (1) TMI 821 - AT - Service Tax

Tribunal rejects technology transfer fee and excess credit demand, disallows R&D cess deduction from service tax.

M/s Whirlpool of India Ltd. Versus CCE & ST, New Delhi

The Tribunal set aside the demand for technology transfer fee and excess CENVAT credit utilization, finding them unsustainable. The demand for R&D ... Import of IPR services - reverse charge - Levy of service tax on Technology Transfer fee paid to Whirlpool, USA - Non payment of service tax on Brand Fee - Cenvat Credit - non-maintenance of separate records for taxable and exempted services - Held that:- It is evident that the agreement is entered for the purpose of supply of technology/technical assistance/information by Whirlpool, USA to the appellant and the remuneration received by Whirlpool, USA is only for the use of the same by the appellant. There is nothing on record that any of the said technology/technical know-how/information is registered or patented under Indian law. - only such intellectual property rights which are covered under Indian law in force alone are chargeable to service tax under IPR service. The Commissioner does not identify any Indian law under which the technology transfer and technical assistance involved in this case is covered. Demand of service tax on Brand fee - Held that:- service tax on IPR service is exempt only to the extent of the R&D cess paid towards the import of technology under the provisions of Section 3 of the R&D Cess Act, 1986 in relation to such intellectual property service (emphasis added). It is admitted that no service tax was paid under IPR service on the amount paid for such technology transfer which means that the appellant also was of the view that such technology transfer was not in relation to IPR service. Indeed in the preceding para, it is held that such technology transfer is not covered under IPR service. Consequently, the appellant was not eligible to deduct the R&D cess it paid on technology transfer from the service tax payable under IPR service as such technology transfer was not in relation to intellectual property service. Thus the component of impugned demand amounting to ₹ 9,97,608/- is sustainable on merit. Cenvat Credit - Held that:- Adjudicating authority is only bound by the orders of the superior adjudicating authority like CESTAT and the observations of the Committee of Chief Commissioners are of administrative nature and not of quasi-judicial nature to have any binding effect on adjudicating authority. Thus there is no doubt that even in the opinion of the adjudicating authority, component of demand confirmed on account of non-maintenance of separate accounts of taxable and exempted services is not sustainable. Extended period of limitation - It is seen that the components of demand on technology transfer and with regard to R&D cess were the subject matter of an earlier show cause notice dated 17.10.2008 issued to the appellant covering an earlier period 2005-06 & 2006-07 - the extended period in the present case is not invocable which will make these components of the impugned demand time-barred because the show cause notice was issued on 05/04/2010 for the period up to March 2008. Demand set aside - Decided in favor of assessee. Issues Involved:1. Service tax on technology transfer fee.2. Service tax on brand fee.3. Excess utilization of CENVAT credit.4. Deduction of R&D cess from service tax paid on brand fee.5. Invocation of the extended period for demand.Detailed Analysis:1. Service Tax on Technology Transfer Fee:The Commissioner confirmed a demand of Rs. 45,29,167/- for the technology transfer fee paid to Whirlpool, USA from April 2007 to March 2008 under Section 73(1) of the Finance Act, 1994, along with interest under Section 75 of the Act. The appellant contended that the technology transfer fee was for receiving technical know-how, which does not fall under the category of 'intellectual property rights service'. The Tribunal found that the agreement between the appellant and Whirlpool, USA was for the supply of technology and technical assistance, not for intellectual property rights. As the technology/technical know-how was not registered or patented under Indian law, it did not fall within the scope of 'intellectual property rights service'. The Tribunal held that the Commissioner's conclusion was devoid of reasoning and the demand was not sustainable.2. Service Tax on Brand Fee:The Commissioner confirmed a demand of Rs. 9,97,608/- for short payment of service tax on brand fee under Section 73(1) of the Act along with interest under Section 75 of the Act. The appellant argued that the deduction of R&D cess from service tax paid on brand fee under IPR services was admissible as per Notification 17/2004-ST. However, the Tribunal noted that the notification exempts service tax on IPR service to the extent of R&D cess paid towards the import of technology under the R&D Cess Act, 1986. Since the technology transfer was not covered under IPR service, the appellant was not eligible to deduct the R&D cess from the service tax payable on brand fee. Thus, the demand of Rs. 9,97,608/- was sustainable on merit.3. Excess Utilization of CENVAT Credit:The Commissioner confirmed a demand of Rs. 22,29,753/- for excess utilization of CENVAT credit due to non-maintenance of separate records for taxable and exempted services under Rule 14 of the CENVAT Credit Rules, 2004, and Section 73 of the Act. The appellant contended that it was not providing any exempted services, and the show cause notice did not specify any exempted services rendered by it. The Tribunal found that the show cause notice did not identify any exempted services, and the adjudicating authority's finding that the appellant was providing exempted services was not supported by evidence. The Tribunal concluded that the demand for excess utilization of CENVAT credit was not sustainable.4. Deduction of R&D Cess from Service Tax Paid on Brand Fee:The appellant deducted R&D cess from the service tax paid on brand fee under IPR services. The Tribunal noted that the notification exempts service tax on IPR service to the extent of R&D cess paid towards the import of technology under the R&D Cess Act, 1986. Since the technology transfer was not covered under IPR service, the appellant was not eligible to deduct the R&D cess from the service tax payable on brand fee. Therefore, the demand of Rs. 9,97,608/- was sustainable on merit.5. Invocation of the Extended Period for Demand:The appellant argued that the extended period was not invocable as there was no suppression or willful misstatement. The Tribunal noted that the components of demand on technology transfer and R&D cess were the subject of an earlier show cause notice dated 17.10.2008 for the period 2005-06 and 2006-07. In light of the Supreme Court judgments in Nizam Sugar Factory and Pushpam Pharmaceutical Company, the Tribunal held that the extended period was not invocable, making these components of the demand time-barred.Conclusion:The Tribunal set aside the impugned demand and allowed the appeal, finding that the demands on technology transfer fee and excess utilization of CENVAT credit were not sustainable, and the demand related to R&D cess was time-barred.