Joint venture know-how payments not taxable as consulting engineering service without proof of actual consultancy

Amounts paid under a genuine joint venture arrangement for sharing technical know-how were not chargeable to service tax as consulting engineering service. The arrangement was treated as a mutual commercial collaboration for manufacture of agreed goods, not a contract for engineering consultancy. The record did not show that the foreign collaborator was an engineering consultancy firm or that it was commercially rendering taxable consulting engineering service. The Revenue was required to strictly prove that the payment represented consideration for such taxable service, and that burden was not discharged. Mere use of technical expertise in the joint venture was insufficient, so the demand was unsustainable and the appeals were allowed.

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Issues: Whether the amounts paid under the joint venture arrangement to the foreign collaborator were chargeable to service tax as consideration for consulting engineering service.

Analysis: The arrangement was examined as a joint venture intended to share technical know-how for manufacture of the agreed goods and not as a commercial engagement for rendering engineering consultancy. The record did not establish that the foreign collaborator was an engineering consultancy firm or that it was engaged in providing consulting engineering service commercially. The Revenue was required to strictly prove that the payment was made for taxable engineering consultancy, and that burden was not discharged. Mere involvement of technical expertise in the joint venture was held insufficient to convert the transaction into consulting engineering service.

Conclusion: The amounts were not taxable as consideration for consulting engineering service, and the demand was not sustainable.

Final Conclusion: The demands raised in adjudication were set aside and the appeals were allowed.

Ratio Decidendi: Where a payment is made under a genuine joint venture arrangement for sharing know-how and mutual commercial benefit, it does not become consideration for consulting engineering service unless the Revenue proves that the recipient is actually rendering taxable engineering consultancy.

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