Service tax on royalty for know-how use stayed where prima facie case and notice scope favoured the assessee

Waiver of service tax demand, penalties and stay of recovery were granted on a prima facie showing based on earlier Tribunal decisions. The assessee's contention that the foreign licensor was not an engineering concern remained unrebutted at the interim stage, weakening the proposed levy on royalty for use of know-how. The suggested apportionment of payments between consulting engineering services and intellectual property right services was also treated as beyond the scope of the show cause notice, which had proposed tax only under consulting engineering services.

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Issues: Whether waiver of the service tax demand and penalties, and stay of recovery pending appeal, should be granted in respect of service tax demanded on royalty paid for licence to use know-how.

Analysis: A prima facie case for waiver was found in the light of earlier Tribunal decisions. The assessee's stand that the foreign firm was not an engineering concern was not rebutted by material placed by the Revenue at the interim stage. The proposed apportionment of payments between consulting engineering services and intellectual property right services was also treated as going beyond the scope of the show cause notice, which had proposed levy only under the heading of consulting engineering services.

Conclusion: Waiver of the service tax and penalties was granted and recovery was stayed pending disposal of the appeal.

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