2019 (11) TMI 1344 - AT - Service Tax

Tribunal Rules No Service Tax on Pre-2006 Management Consultancy; Technical Knowhow Not Taxable Under Engineering Services.

M/s. LM Wind Power Blades (India) Private Limited Versus Commissioner of Service Tax Bangalore Service Tax- I (Vice-Versa)

The Tribunal ruled in favor of the appellants, holding that no service tax liability existed for Management Consultancy Services received before ... Import of services - Non-payment of service tax - Management Consultancy services availed from foreign service providers - Department also opined that the appellants have obtained technical knowhow from Foreign Service providers and were not paying applicable duty on technical knowhow and intellectual property service. Taxability before April 18, 2006 on Management Consultancy services - import of service - case of appellant is that import of services are taxable in India only with effect from April 18, 2006 i.e., the date on which Section 66A was inserted in the Finance Act - HELD THAT:- The appellant’s contentions, as far as the applicability of service tax on Management Consultancy Services received by them before 18.4.2006 are concerned, are acceptable - reliance can be placed in the judgment of the Hon’ble Bombay High Court in the case of Indian National Shipowners Association vs. UOI [2008 (12) TMI 41 - BOMBAY HIGH COURT] where it was held that Before insertion of section 66A with effect from 18-4-2006, there was no authority to levy service tax on Import of service - thus, no service tax can be fastened to the appellants before 18.4.2006. Accordingly, it is to be held that the appellants are liable to pay service tax of ₹ 48,76,268/- for the period April 2006 to March 2007 - decided against Revenue. Classification of services - technical knowhow received from their related foreign entity for the period 16th August 2002 to 31st March 2007 - demand of service tax, however, the demand on the same was under the heading “Consulting Engineering Services” for the period 16.8.2002 to 9.9.2004 for an amount of ₹ 92,74,747/- and under “Intellectual Property Services” for the period 10.9.2004 to 31.3.2007 - HELD THAT:- The payments are made for technical knowhow, training, etc., and not for the use of logo. Though, the use of logo is permitted in terms of the agreement unless a specific payment is made for the same, it cannot be said that the appellants have availed any trademark in terms of the service tax law - reliance placed in the case of ABB LTD VERSUS C.C.E. & S.T. -BANGALORE-LTU [2019 (1) TMI 1037 - CESTAT BANGALORE] where it was held that Know-how is not recognized as Intellectual Property law by any Indian Law for the time being in force. In fact know-how is the undisclosed information cited by the Department clarification dt. 10/09/2004 as example of intellectual property right not covered by any Indian law - appellants are not liable to pay service tax on ‘Consulting Engineering Services’ and ‘Intellectual Property Services’ as demanded by the department - penalty also set aside - decided against Revenue. Decided in favor of assessee. Issues Involved:1. Liability of service tax on Management Consultancy Services received before 18.4.2006.2. Liability of service tax on technical knowhow under Consulting Engineering Services and Intellectual Property Services.3. Imposition of penalty under Section 78.Issue-wise Detailed Analysis:1. Liability of Service Tax on Management Consultancy Services Received Before 18.4.2006:The appellants, engaged in manufacturing rotor blades, received Management Consultancy from foreign service providers but did not discharge service tax under Rule 2(1)(d)(iv) of Service Tax Rules, 1994. A show-cause notice dated 12.10.2007 demanded service tax of Rs. 1,46,60,197/- for the period 16.8.2002 to 31.03.2007. The appellant argued that as per the judgment of the Hon’ble Bombay High Court in Indian National Shipowners Association vs. UOI, import of services became taxable in India only from April 18, 2006, when Section 66A was inserted in the Finance Act. This position was supported by the Karnataka High Court and the Tribunal in CST vs. Toyoda Iron Works and M/s. BHEL-Gs Turbine Services Pvt. Ltd. The Tribunal found the appellant’s contentions acceptable and held that no service tax could be fastened before 18.4.2006. Consequently, the appellants were liable to pay service tax of Rs. 48,76,268/- for the period April 2006 to March 2007, which had already been paid, negating the need for any penalty. The Departmental Appeal No. ST/442/2009 was thus rejected.2. Liability of Service Tax on Technical Knowhow Under Consulting Engineering Services and Intellectual Property Services:For the period 16.8.2002 to 31.3.2007, the Department demanded service tax on technical knowhow received from a related foreign entity, categorized under Consulting Engineering Services (Rs. 92,74,747/- for 16.8.2002 to 9.9.2004) and Intellectual Property Services (Rs. 3,34,03,591/- for 10.9.2004 to 31.3.2007). The appellant argued, referencing the Indian National Shipowners Association case, that the demand under Consulting Engineering Services was unsustainable for the period 16.8.2002 to 9.9.2004. Regarding Intellectual Property Services, the appellant cited the Tribunal’s decision in ABB Ltd., which held that technical knowhow is not recognized as Intellectual Property under Indian Laws and thus not taxable under Intellectual Property Services. The Tribunal agreed, noting that payments were made for technical knowhow, training, etc., and not for the use of a logo. Since technical knowhow is not recognized as an Intellectual Property Right under Indian law, the demand for service tax on Intellectual Property Services was unsustainable. Consequently, the appeal No. ST/500/2009 was allowed, and the Departmental Appeal No. ST/443/2009 was rejected.3. Imposition of Penalty Under Section 78:The Department appealed for the imposition of a penalty under Section 78, arguing that the appellants had received taxable services from foreign service providers. However, since the Tribunal found that the appellants were not liable to pay service tax on Management Consultancy Services before 18.4.2006 and on technical knowhow under Consulting Engineering Services and Intellectual Property Services, the demand itself did not sustain. Therefore, the plea for imposing a penalty under Section 78 did not survive, and the Departmental Appeals (Nos. ST/442-443/2009) were rejected.Conclusion:(i) Appeal No. ST/456/2009 was partly allowed by confirming the duty of Rs. 48,76,268/- for the period April 2006 to March 2007, and appeal No. ST/500/2009 was allowed. The cross objections filed by the appellants were disposed of accordingly.(ii) Appeal Nos. ST/442-443/2009 filed by the Revenue were rejected.(Order was pronounced in Open Court on 27/11/2019.)