Tribunal rules in favor of appellants, setting aside service tax demand for Intellectual Property and Management Consultancy services.

The Tribunal set aside the demand for service tax under Intellectual Property Service and Management Consultancy Service, ruling in favor of the appellants. The Tribunal found that the activities fell under Information Technology Software Services rather than Intellectual Property Right services. Additionally, there was no evidence of a consultancy agreement or payment for consultancy services in the case of Management Consultancy Service. The demand was also deemed time-barred, and the situation was considered revenue-neutral. The appellants' appeal was allowed, and the judgment was delivered on 29.09.2021.

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Issues Involved:
1. Demand of service tax under Intellectual Property Service.
2. Demand of service tax under Management Consultancy Service.
3. Limitation and revenue neutrality.

Issue-wise Detailed Analysis:

1. Demand of Service Tax under Intellectual Property Service:

The appellants were engaged in manufacturing mobile phone parts and paid license fees to M/s. Sony Ericsson, Sweden for using certain software. The department argued that this license fee fell under Intellectual Property Right (IPR) services, making the appellants liable to discharge service tax under the reverse charge mechanism. The appellants contended that the right to use software is not covered under the definition of IPR services but falls under 'Information Technology Software Services' (ITSS), which was introduced into the service tax net from 16.5.2008. They argued that the software was transmitted electronically and downloaded before ITSS was taxable. The Tribunal agreed with the appellants, noting that the activity fell under ITSS and not IPR services, and since the software was registered outside India, it did not attract service tax under IPR services. The demand under IPR services was thus set aside.

2. Demand of Service Tax under Management Consultancy Service:

The appellants were alleged to have received Management Consultancy Services from M/s. Fox Conn, China, for which they incurred expenses for foreign professionals' boarding, transport, and other incidental costs. The department claimed these expenses fell under Management Consultancy Service, requiring service tax payment under the reverse charge mechanism. The appellants argued there was no agreement for such services and the expenses were merely for incidental costs, not consultancy fees. The Tribunal found no evidence of an agreement or payment of consultancy fees, noting the expenses were for incidental costs in Indian currency. Consequently, the demand under Management Consultancy Service was deemed unsustainable and was set aside.

3. Limitation and Revenue Neutrality:

The appellants argued the demand was time-barred, as the department had raised the issue in 2007, but the Show Cause Notice was issued only in 2010. They also asserted the situation was revenue neutral since any service tax paid under reverse charge mechanism could be availed as CENVAT credit. The Tribunal agreed, noting no suppression of facts or willful misstatement by the appellants and recognizing the revenue-neutral situation. Thus, the demand was also set aside on the grounds of limitation.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any. The demands under Intellectual Property Service and Management Consultancy Service were found unsustainable, and the issue was also time-barred. The judgment was pronounced in open court on 29.09.2021.

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