Foreign collaborator royalty escapes service tax before Section 66A; recipient liability did not arise for prior periods.

Royalty and technical know-how payments to a foreign collaborator were treated as outside Consulting Engineer Service on the facts found, and the recipient in India could not be fastened with service tax liability for the period before Section 66A of the Finance Act, 1994 came into force. The article states that, prior to 18.04.2006, there was no charging provision to levy service tax on the recipient of services provided from outside India, following settled precedent. On that basis, the confirmed demand, along with the consequential interest and penalty, was held unsustainable and set aside.

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Issues: Whether royalty and technical know-how payments made to foreign collaborators were taxable as Consulting Engineer Service or Intellectual Property Service for the period prior to 18.04.2006, and whether the service recipient in India could be fastened with service tax liability before Section 66A of the Finance Act, 1994 came into force.

Analysis: The royalty paid for transfer of technology and know-how was held to be outside the scope of Consulting Engineer Service and the recipient-liability issue was governed by the settled position that, prior to the introduction of Section 66A of the Finance Act, 1994, there was no charging provision to levy service tax on the recipient of services provided from outside India. The decision followed the binding precedent that such liability arose only from 18.04.2006, and the issue was treated as no longer res integra. In view of that settled legal position, the confirmed demand and the consequential levy could not survive.

Conclusion: The demand of service tax on the royalty payments for the disputed period was unsustainable and was set aside.

Final Conclusion: The appeal succeeded and the impugned order confirming service tax, interest, and penalty was quashed with consequential relief.

Ratio Decidendi: Service tax on services received from a foreign collaborator could not be levied on the recipient in India for the period prior to the commencement of Section 66A of the Finance Act, 1994, and royalty for transfer of technology did not fall within Consulting Engineer Service on the facts found.

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