Tribunal rules technical know-how not taxable as IP service; limits penalty, remands for re-computation

The Tribunal set aside the demand of service tax on technical know-how and commercial training or coaching services, ruling that technical know-how does not fall under the category of Intellectual Property Right service. The demand for technical testing and analysis services was not contested and decided against the appellant. The Tribunal held that the extended period of limitation was not applicable, and no penalty could be imposed. The matter was remanded for re-computation of service tax, and the appeal was partly allowed.

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Issues Involved:

1. Demand of service tax under the category of Intellectual Property Right service on transfer of technical know-how.
2. Demand of service tax on the activity of technical testing and analysis rendered outside India.
3. Demand of service tax on commercial training or coaching service rendered outside India.
4. Invocation of the extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Demand of Service Tax under Intellectual Property Right Service on Transfer of Technical Know-How:

The appellant contested the demand of service tax on the royalty/license fee paid to M/s. ABB Technology Ltd., Zurich, Switzerland for technical know-how. The appellant argued that the technical know-how provided by the foreign companies does not constitute a service under the category of Intellectual Property Right service as defined in Section 65(55a) and Section 65(55b) of the Finance Act, 1994. The appellant relied on various judicial precedents, including their own case (2017(49) STR 209) and decisions such as Asea Brown Boveri Ltd. Vs. CCE&ST, LTU, Bangalore [2017(49) STR 209 (Tri. Bang.)], which held that technical know-how does not fall under the definition of Intellectual Property Right and is not taxable. The Tribunal agreed with the appellant, stating that the know-how is not recognized as Intellectual Property by any Indian law and thus, the demand of Rs. 6,28,85,949/- under this category was set aside.

2. Demand of Service Tax on Technical Testing and Analysis Rendered Outside India:

The appellant initially contested this demand but later did not press for it during the arguments. The Tribunal did not delve into this issue further and decided against the appellant.

3. Demand of Service Tax on Commercial Training or Coaching Service Rendered Outside India:

The appellant argued that the commercial training or coaching services were conducted outside India, specifically citing a seminar attended by their employees in Lusanne, Switzerland. The appellant provided evidence, including certificates of participation, to support their claim. The Tribunal agreed that since the services were rendered outside India, they were excluded from the ambit of Rule 3(1)(ii) of the Rules, and thus, the appellant was not liable to pay service tax on these services.

4. Invocation of the Extended Period of Limitation and Imposition of Penalties:

The appellant argued that the extended period of limitation was wrongly invoked as the Department was aware of all the relevant facts since July 2005. The Tribunal referred to the Apex Court's decision in Nizam Sugar Factory Vs. CCE, AP [2008(9) STR 314 (SC)], which states that when the Department is aware of the facts, suppression of facts cannot be alleged. The Tribunal found that the demand for the period January 2007 to March 2007 was time-barred. Additionally, since the demand was on a reverse charge basis and the appellant could take credit of the service tax paid, the entire exercise was revenue-neutral. Therefore, the Tribunal held that the extended period of limitation was not invocable, and no penalty could be imposed under Section 78 of the Act.

Conclusion:

The Tribunal set aside the demand of service tax on technical know-how and commercial training or coaching services. The demand on technical testing and analysis services was not contested and thus decided against the appellant. The matter was remanded to the original authority for re-computation of the service tax as per the Tribunal's findings. The appeal was partly allowed.

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