2008 (7) TMI 26 - AT - Service Tax

Appellate Tribunal Rules in Favor of Appellant in Technology Transfer Tax Case

Bharat Heavy Electricals Ltd. Versus CCE, Bhopal

The Appellate Tribunal CESTAT, New Delhi, in a case concerning the taxability of technology transfer agreements, ruled in favor of the Appellant. The ... Engineering consultancy service - Appellant is service recipient from an offshore service provider - Transfer of right to use a patented technology and a brand name is Intellectual Property Right Service, which became taxable w.e.f. 10/09/04 only, while the period of dispute in this case is 17/1/03 to 31/03/04 – held that Appellants have not received any taxable service under head Engineering consultancy and the impugned order upholding the service tax demand & penalty are set aside Issues: Whether an agreement for transfer of technology can be treated as an agreement for receiving engineering consultancy service under Section 65 (105g) and whether the service recipient is liable to pay service tax on the consideration paid to the offshore service provider.Analysis:1. The main point of dispute in this case was whether an agreement between the Appellant and M/s Siemens, granting a license to manufacture products using technology developed by M/s Siemens, should be considered as an agreement for receiving engineering consultancy service. The consideration included a one-time payment for documentation and training, as well as royalty charges.2. The Appellant argued that the agreement was for the transfer of patented technology and brand name, not engineering consultancy, and therefore should not attract service tax. The Appellant cited various judgments to support this argument, emphasizing that IPR service was not taxable during the relevant period.3. The Departmental Representative, however, contended that the transfer of technology is covered by Engineering Consultancy Services under an exemption notification. The representative defended the impugned order, which imposed service tax on the consideration paid to M/s Siemens.4. The Tribunal carefully considered the submissions from both sides and referred to previous judgments. It was noted that the transfer of right to use patented technology and brand name is considered an IPR service, which became taxable only after the relevant dispute period. Therefore, the Tribunal held that the Appellants did not receive any taxable service during the period in question.5. Consequently, the impugned order, which demanded service tax from the Appellant and imposed a penalty, was deemed unsustainable. The Tribunal set aside the order and allowed the appeal in favor of the Appellant.6. The judgment was pronounced in open court on 17/07/2008 by the Appellate Tribunal CESTAT, New Delhi, with the decision delivered by Rakesh Kumar, Member (T).