TaxTMI 
TaxTMI 
2026 (5) TMI 1591
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt's accounts by the Internal Audit Wing of the Service Tax Commissionerate in Chennai, it was discovered that between 2007-08 and 2011-12 the appellant spent foreign currency on technical assignment and consultancy fees. These payments were made to overseas service providers, M/s. Composite Technologies Centre (CTC) in the Netherlands and M/s. Windrad Engineering GmbH in Germany, both of which have no offices in India. The International Technology Transfer Agreement dated 31 May 2008/02 June 2008 between M/s. CTC and the appellant showed that CTC held the proprietary rights to the technical know-how for rotor blade manufacture. The appellant was granted exclusive rights to produce and sell the product and provide after-sales service in India. CTC supplied the appellant with designs, drawings and technical information for commercial exploitation retaining copyright on the documents and designs. CTC also provided skilled personnel services and technical advice at the appellant's expense enabling appellant employees to learn how to use the technology and design. CTC offered design engineer, draftsman and supervisor support at specified rates with the appellant covering travel, car co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rights ("IPR") under Section 65(55a) of the Finance Act 1994 (FA 1994), inasmuch as the foreign entity which owns the designs and the know-how has no registration either under any laws governing IPRs in India, for it to be recognised under the Indian Laws. She referred to Circular No. 80/10/2004- ST dated 17.09.2004 and Letter vide F. No. B2/8/2004- TRU, dated 10-92004 to support their averment that IPRs covered under Indian law in force at present alone are chargeable to service tax. Further the Tribunal in CHAMBAL FERTILIZERS & CHEMICALS LTD. Vs COMMR. OF C. EX., JAIPUR-I [2016 (45) S.T.R. 118 (Tri. - Del.)], Munjal Showa Ltd. Vs Commissioner of C.EX. & ST, Delhi 2017 (5) G.S.T.L. 145 (Tri. - Chan.), had held that to be categorized for service tax purpose under IPR, such right should have been registered with trademark/ patent authority. The Ld. Counsel relied upon the following judgments in support of her submissions: (i) Tata Consultancy Services Ltd. vs. Commissioner of S.T., Mumbai 2016 (41) STR 121 (Tri.-Bom) (ii) Hindustan Aeronautics Ltd. vs Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar-I (2024) 19 Centax 418 (Tri.-Cal) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ible to service tax, the tax so paid would be available as Cenvat credit in the hands of the Appellant, in terms of Rule 3 of the Cenvat Credit Rules, 2004. Therefore, the transaction would be revenue neutral. It is for this reason alone the Impugned demands ought not to be entertained. She submitted that even assuming any amounts are payable by the Appellant, the benefit of the principle of cum-tax is to be afforded to the Appellant. E. No interest or penalty is payable when there is no suppression of fact. In any event, it is a settled legal position that as held in the case of Raval Trading Co. Vs Commissioner of Service Tax - 2016 (42) S.T.R. 210 (Guj.), there cannot be imposition of penalty under Section 76 and 78 simultaneously. F. Section 80 of the Act is applicable to the present case. In this instant matter, the Appellant was under the bonafide belief that the agreements entered into between CTC and Windrad does not attract service tax on the above enunciated grounds. Hence, the benefit of Section 80 ought to be extended. She submitted many judgments in support of their averments which shall be referred to later in the order, where necessar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive of whether it is an individual, firm, or company. The Ld. A.R. stated that impugned order was legal and proper and prayed that the appeals may be rejected. Discussion & Analysis 4. We have heard the parties and perused the appeals. The present dispute pertains to a demand of service tax being confirmed on reverse charge basis, on intellectual property services and consulting engineer services allegedly received by the Appellant from entities located outside India. The main challenge mounted by the appellant on merits is that; (i) Transfer of technical know-how from outside India is not amenable to service tax, for it is not an IPR in India, and; (ii) The transaction entered with Windrad is not a consulting engineering service. The other issues pertain to limitation, revenue neutrality, interest and penalty. Intellectual Property Services 5. An apércu of the facts relevant to the first issue are that the Appellant entered into an International Technology Transfer Agreement (IITA) dated 30.05.2008 with M/s. Composite Technology Center, Netherlands (CTC). CTC, have the proprietary rights in the technical knowledge regarding the manufactu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervice; Section 65(55a) of the Act defines "Intellectual Property Right" to mean as under: "Intellectual Property Right" means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright" 6. The IPR as defined should be a right under any law for the time being in force. The legal position on this issue has been examined by various decisions of the Tribunal which are as under: a) Rochem Separation Systems (India) Private Limited v. Commissioner of Service tax, Mumbai I 2015 (39) STR 112 (Tri-Mum) [ para 8]; b) Whirlpool of India Limited vs. C.C.E & S.T., Delhi - 2016 VIL 57 CESTAT DEL ST [ para 7 ]; c) Tata Consultancy Services Limited vs. C.S.T., Mumbai - 2015 TIOL 2370 CESTAT MUM [ para 4.1] d) Area Brown Boveri Ltd. vs. C.C.E & S.T., Bangalore - 2016 VIL 480 CESTAT BLR ST [ para 6.7.1] ; e) Reliance Industries Ltd. vs. C.C.E. & S.Tax, Mumbai - 2016 TIOL 1654 CESTAT MUM [ para 2]; 7. It has been held that to be categorized for service tax purpose under IPR, such right should ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow received as per the IITA from CTC was not registered as an IPR under the laws of India. This being so and in the light of the judgments of this Tribunal cited above, we hold that the Department has not discharged its burden of proof of exigibility of the activity to tax under the head of "Intellectual Property Service" and the demand for duty under the RCM as per Section 68(2) of the FA 1994 merits to be dropped. Consulting Engineering Service 7. The second issue pertains to the Engineering Consultancy Agreement (ECA) dated 08.01.2008 entered into by the appellant with M/s. Windrad Engineering, Germany. The appellant has stated that the service availed Under the ECA is only technical know-how and not engineering consultancy service. 7.1 As per the ECA, Windrad have considerable experience in providing engineering consultancy for development of wind turbines. They have agreed to provide necessary engineering services for development of wind turbines. Their development team consists of eight engineers and were to work along with the Appellants Research and Development team consisting of 6 engineers to make the project successful. The project was divided into two phases ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering including the discipline of computer hardware engineering. Explanation. For the purposes of this sub-clause, it is hereby declared that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this sub-clause:" (emphasis added) 7.5 A plain reading of section 65(105)(g) shows that the levy is attracted only when the service in question is rendered by a consulting engineer and is in relation to advice, consultancy or technical assistance in one or more disciplines of engineering. The mere fact that the contract pertains to an engineering subject is, by itself, not sufficient. The Department is required to establish that the consideration was paid for an advisory or consultative service or technical assistance falling squarely within the taxable entry simpliciter, and not for execution-oriented obligations undertaken under a composite agreement. 7.6 No doubt, the expressions "in relation to" an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is founded upon deliberation, conferring and rendering of opinion. Examined on that touchstone, the ECA cannot be regarded as a mere advisory contract. Windrad was required to depute a team of engineers to work with the appellant's own R&D personnel over a period of 15 months in relation to concept development, design, detailing, prototype-related work and start-up support. The agreement also contemplated the generation of materials and data, ownership whereof was to vest in the appellant upon final payment. These features, in our view, are indicative of a composite arrangement involving active participation in execution and creation of deliverables, and not of a standalone consulting engagement alone. The contract, therefore, cannot be vivisected so as to isolate the engineering skill embedded in its performance and tax the same as 'Engineering Consultancy service'. 7.8 In Skycell Communications Ltd. Vs Deputy Commissioner of Income-Tax [(2001) 251 ITR 53], the Hon'ble Madras High Court held that where the expression "technical services" as appearing in Explanation 2 to section 9(1)(vii) of the Income Tax Act 1961, is imprecise, the rule of noscitur a sociis may legitimately b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting Engineering Service' under FA 1994, fell for consideration before a Coordinate Bench of this Tribunal in Jyoti Ltd., (supra) relied upon by the appellant. Due to a difference of opinion among the Members of the Bench, the matter was referred to a Third Member. The majority view followed an approach similar to that seen in Skycell Communications, above. It held: "4. As is further seen that such engineering firm should be rendering any advice, consultancy or technical assistance to a client to make them liable to service tax. To render advice means to give opinion or to make a recommendation regarding decision or course of conduct. Consulting means seek information or advice from a person or to take counsel. Person consulted is a consultant and hence consultancy means rendering professional advice or service. Similarly, 'technical assistance' means providing assistance on the basis of special skill and knowledge. Where a person himself undertakes a job on contract basis for installation, erection and commissioning of machine, services are in the nature of execution of jobs and not in the nature of advice, consultancy or technical assistance. As observed by the o....