Transfer of technical know-how falls outside consulting engineer service, and a prospective notification cannot justify an earlier tax demand.

Transfer of technical information, technical assistance and technical know-how for setting up and operating a service centre was treated as outside consulting engineer service, because the transfer of technology for repair and maintenance operations did not fit that taxable category. The note also states that Notification No. 36/2004-ST, effective only from 1-1-2005, could not be used to sustain a demand for an earlier period. On that basis, the service tax demand was described as unsustainable both on merits and because the notification operated prospectively.

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Issues: (i) Whether transfer of technical information, technical assistance and technical know-how for setting up and operationalising a service centre falls within the scope of consulting engineer service for levy of service tax. (ii) Whether Notification No. 36/2004-ST dated 31-12-2004 could sustain the demand for a period prior to 1-1-2005.

Issue (i): Whether transfer of technical information, technical assistance and technical know-how for setting up and operationalising a service centre falls within the scope of consulting engineer service for levy of service tax.

Analysis: The dispute concerned a technical agreement under which foreign technical know-how and assistance were supplied for repair and maintenance operations. The Tribunal noted that earlier decisions had consistently held that such transfer of technology does not amount to consulting engineer service. On that basis, the activity was treated as outside the taxable category relied upon by the revenue.

Conclusion: The issue was decided in favour of the assessee and the activity was held not taxable as consulting engineer service.

Issue (ii): Whether Notification No. 36/2004-ST dated 31-12-2004 could sustain the demand for a period prior to 1-1-2005.

Analysis: The notification relied upon by the revenue was stated to have come into force only from 1-1-2005, whereas the period in dispute ended earlier. A notification taking effect prospectively could not be used to fasten liability for an earlier period.

Conclusion: The notification did not support the demand for the prior period and the levy was unsustainable.

Final Conclusion: The service tax demand was held unsustainable on merits and on the footing of the prospective notification, and the assessee obtained full relief.

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