Unregistered foreign know-how and composite engineering development were outside service tax on intellectual property and consultancy grounds.

Technical know-how, designs and drawings transferred by a foreign entity were held outside intellectual property rights service because the definition requires a right in intangible property recognised under Indian law, and the materials were not shown to be registered or otherwise protected thereunder. The engineering arrangement was also held outside consulting engineering service because the contract was composite and execution-oriented, involving design, detailing, prototype work and start-up support, rather than standalone advice or consultancy in an engineering discipline. The stated principle is that unregistered foreign know-how not recognised under Indian law is not taxable as intellectual property rights service, and composite development agreements cannot be split into taxable consultancy merely because engineering skills are involved.

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Issues: (i) Whether transfer of technical know-how, designs and drawings by a foreign entity without registration in India was taxable as intellectual property rights service under the Finance Act, 1994; (ii) Whether the engineering consultancy arrangement with a foreign entity was taxable as consulting engineering service.

Issue (i): Whether transfer of technical know-how, designs and drawings by a foreign entity without registration in India was taxable as intellectual property rights service under the Finance Act, 1994.

Analysis: The definition of intellectual property right under Section 65(55a) of the Finance Act, 1994 requires a right in intangible property under a law for the time being in force. The transferred technical know-how, designs and drawings were not shown to be registered or otherwise recognised as intellectual property under Indian law. The issue was already settled by prior tribunal decisions holding that unregistered foreign know-how not recognised under Indian law does not attract the levy as intellectual property rights service.

Conclusion: The demand under intellectual property rights service was not sustainable and was rejected in favour of the assessee.

Issue (ii): Whether the engineering consultancy arrangement with a foreign entity was taxable as consulting engineering service.

Analysis: A consulting engineer service under Section 65(31) and Section 65(105)(g) of the Finance Act, 1994 requires advice, consultancy or technical assistance in an engineering discipline. The arrangement with the foreign entity was a composite development agreement involving design, detailing, prototype work and start-up support by engineers working with the assessee's team, rather than a standalone advisory or consultative service. Such execution-oriented activity could not be vivisected and brought within the taxable entry merely because it involved engineering skills.

Conclusion: The demand under consulting engineering service was not sustainable and was rejected in favour of the assessee.

Final Conclusion: The impugned demand could not be sustained on either taxable category, and the assessee was entitled to consequential relief.

Ratio Decidendi: For service tax purposes, intellectual property rights must be a right recognised under Indian law, and consulting engineering service is confined to advisory, consultative or technical assistance simpliciter, not composite execution-oriented development arrangements.

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