2025 (4) TMI 764 - AT - Service Tax

Technology assistance from Research Center to foreign holding company not liable for service tax as integral part of company

CESTAT Bangalore held that consideration received by appellant from foreign holding company for technology assistance provided by its Research Center was ... Taxability - provision of service - whether the consideration received by the appellant for the 'Technology Assistance' provided by their Research Center, from one of its Divisions can be considered as provision of service? - consideration received from M/s. Fosroc International Limited (FIL) to the appellant is liable for payment of service tax or the transaction can be considered as export of service or not - HELD THAT:- On going through the evidence produced by the appellant and as per the evidence available on record it is an admitted fact that the 'Forsoc Technology Center' (FTC) is a part and parcel of the appellant only. Moreover, the amount spent by the appellant for R&D activities of 'Forsoc Technology Center' (FTC) cannot form part of taxable value of the service in question said to have been paid to the holding company. The MOU between the appellant and the foreign company M/s. Fosroc International, Ltd., also clearly shows that the 'Forsoc Technology Center' (FTC) is part of the appellant and hence the demand for the period from April 2010 to March 2012 was set aside by the Appellate Authority and once the department accepted the finding in the above order, considering the rule of consistency, service tax is not payable for the subsequent periods, which are the impugned orders in the present 7(seven) appeals filed by the appellant. Fact being so, the impugned orders are not sustainable and need to be set aside. Conclusion - The amount spent by the appellant for R&D activities of 'Forsoc Technology Center' (FTC) cannot form part of taxable value of the service in question said to have been paid to the holding company. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether the consideration received by the appellant for 'Technology Assistance' provided by their Research Center can be considered as the provision of service.Whether the consideration received from M/s. Fosroc International Limited (FIL) is liable for payment of service tax or if the transaction can be considered as an export of service.ISSUE-WISE DETAILED ANALYSIS1. Classification of the Consideration as Provision of ServiceRelevant legal framework and precedents: The issue revolves around the classification of services under the category of 'Scientific and Technical Consultancy' services as per section 65(92) r/w section 65(105)(za) and section 65B(44) r/w section 65B(51) of the Finance Act, 1994.Court's interpretation and reasoning: The Tribunal examined whether the Fosroc Technology Centre (FTC) is a separate legal entity or an integrated part of the appellant's operations. The appellant argued that FTC is an in-house R&D unit recognized by the Department of Scientific and Industrial Research and is not a separate legal entity.Key evidence and findings: The appellant provided evidence, including a certificate from the Ministry of Science and Technology, recognizing FTC as an in-house R&D unit. The financial records showed that FTC's expenses were part of the appellant's expenses, indicating that FTC was not a separate entity.Application of law to facts: The Tribunal found that the expenses incurred by FTC were recorded in the appellant's financial statements, and no separate financial statements were prepared for FTC, reinforcing the argument that FTC was not a separate entity.Treatment of competing arguments: The Tribunal considered the department's argument that the appellant and FTC were separate entities but found no substantial evidence to support this claim.Conclusions: The Tribunal concluded that the consideration received for services provided by FTC should not be classified as a provision of service subject to service tax, as FTC is not a separate legal entity.2. Liability for Service Tax or Export of ServiceRelevant legal framework and precedents: The issue was whether the transaction could be considered an export of service, thus exempting it from service tax under the Finance Act, 1994.Court's interpretation and reasoning: The Tribunal examined the nature of the transaction and the relationship between the appellant and M/s. Fosroc International Limited.Key evidence and findings: The appellant demonstrated that the consideration was received in convertible foreign exchange and was disclosed as 'Export of Service' in the ST-3 returns and audited financial statements.Application of law to facts: The Tribunal found that the services provided by FTC to M/s. Fosroc International Limited were indeed exports, as the consideration was received in foreign exchange, and the services were intended for use by the overseas entity.Treatment of competing arguments: The department's argument that the transaction was not an export of service was not supported by evidence, as previous adjudications had accepted the classification of similar transactions as exports.Conclusions: The Tribunal concluded that the transaction was an export of service and not liable for service tax.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings included:The Fosroc Technology Centre (FTC) is not a separate legal entity but part of the appellant, and its activities do not constitute a provision of service liable to service tax.The consideration received from M/s. Fosroc International Limited for services provided by FTC qualifies as an export of service, exempt from service tax.The Tribunal emphasized the principle of consistency, noting that previous adjudications had accepted similar transactions as exports, and the department had not appealed those decisions.Verbatim quotes of crucial legal reasoning: 'The amount spent by the appellant for R&D activities of 'Forsoc Technology Center' (FTC) cannot form part of taxable value of the service in question said to have been paid to the holding company.'Core principles established: The Tribunal reinforced the principle that integrated operations within a single legal entity should not be artificially separated for tax purposes and that consistency in legal interpretations is crucial.Final determinations on each issue: All seven appeals were allowed, with the Tribunal setting aside the impugned orders and confirming that the transactions were exports of service, not liable for service tax.