TaxTMI 
TaxTMI 
2026 (7) TMI 1850
X X X X Extracts X X X X
X X X X Extracts X X X X
....cars in India. M/s. Skoda Auto A.S., Czech Republic (hereinafter referred to as 'Skoda Czech') possessed technology, technical information, and know-how relating to the manufacture and assembly of passenger cars and components thereof. In order to avail such technology and trademarks, the Appellant entered into an agreement dated 01.10.2001 with Skoda Czech by which Skoda Czech granted the appellant a non-exclusive, non-divisible, non-transferable and non-assignable right to use it pre-existing Technology and Know How, for the purpose of manufacturing, assembling and selling passenger cars, parts and components thereof in India, and for the use of the 'Skoda' trademark. The consideration comprised a lump sum amount of USD 45 million, payable in six installments, and a running royalty of 5% on domestic sales and 8% on exports. 3. The Revenue proceeded on the premise that the services rendered by Skoda Czech to the Appellant under the said agreement were in the nature of 'advice, consultancy or technical assistance' in one or more disciplines of engineering, and thus constituted 'Consulting Engineer Services' as defined under Section 65 of the Finan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant qualify as 'Consulting Engineering Services' u/s. 65 of the Finance Act, 1994, so as to render the said services liable for Service Tax? (ii) If the answer to the issue No.(i) is in affirmative, Whether the levy of Service Tax on the Appellant-a service recipient is legally sustainable for the period 2001-02 to 2003-04, prior to the insertion of relevant provision i.e. Section 66A in the Finance Act, 1994 w.e.f. 18.4.2006 that made the service recipient liable to pay service tax? 6. Learned counsel for the appellant submits that under the agreement, the appellant have been given the right to use the Skoda's technology, technical information and know-how in order to manufacture, assemble and sell passenger cars, parts and components thereof. The said technical know-how provided by Skoda Czech by granting a non-exclusive, non-divisible right to use Technical Documentation for the aforesaid purposes. He further submits that the Technical Documentation is the proprietary knowledge of Skoda Czech on the assembly/manufacture of the automobiles and parts and is essentially in the nature of know-how which Skoda will license for use to appellant. According to him....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar continuous engineering and year model alterations.' 9. It is an admitted position on record that the 'Technical Documentation' constitutes the pre-existing, proprietary intellectual property of Skoda Czech that was developed entirely at its own initiative and expense, without any reference to or instruction from the Appellant. The Appellant did not commission Skoda Czech to develop, design, or engineer any product, process, or solution specific to the Appellant's requirements. The Appellant merely sought a license to use what Skoda Czech had already independently developed. This foundational distinction is of decisive legal significance. 10. During the relevant period, the term 'Consulting Engineer' as defined under Section 65(31) of the Finance Act, 1994 means 'any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.'[emphasis supplied]. The word 'an engineering firm' was later substituted by the words 'any body corporate or any other firm' by Finance Act, 2006 dtd. 18.4.2006 w.e.f. 1.5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dertook any assignment at the instance of the Appellant to render advisory or consultancy services tailored to the Appellant's requirements in India. The mere fact that the subject matter of the license, technical documentation, drawings, diagrams, etc., belongs to the domain of engineering, does not, in and of itself, transform the transaction into a 'consulting engineering service'. The character of the transaction must govern its classification, not merely its subject matter. The correct legal characterisation is that of a licence or transfer of the right to use intellectual property specifically pre-existing know-how and trademark as opposed to the rendering of a service. Section 66 ibid is a charging section and once we have held that the services received by the appellant are not consulting engineering service, the said section has no application. On this ground alone, the demand is unsustainable. 13. Cl. 3.7 of the agreement expressly recognises that the Technical Documentation 'is and shall remain the intellectual property of Skoda Czech.' Skoda Czech had independently created the said intellectual property, prior to and without reference to any requi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....agement. The consultant is engaged by the client to bring their expertise to bear upon the client's problem or project. Skoda Czech was never engaged by the Appellant as a consultant. The Appellant only asked for a license to use Skoda Czech's ready-made technology. There was no assignment of any engineering task to Skoda Czech by the Appellant, no problem was posed to Skoda Czech for solution, and no advice was sought on any specific engineering challenge. 18. We find considerable merit in the submission of the learned counsel that Skoda Czech did not, at any point, act as a Consulting Engineer. The word 'consulting' does not appear anywhere in the agreement dated 01.10.2001. No engineering task was assigned to Skoda Czech by the Appellant. It merely made available, by way of licence, its pre-existing intellectual property. There is not a shred of evidence on record nor was any identified in the impugned Order to show that Skoda Czech, at any stage, applied its engineering expertise to advise the Appellant on a specific engineering problem, or undertook any customised advisory role tailored to the Appellant's requirements or advised, guided, or assisted the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ice in India and is liable to pay service tax on the taxable services provided in India, the service tax thereon shall be paid by such person or on his behalf by any other person authorised by him. In the instant case M/s. SKODA Auto, Tr. Vaclava Klementa 86929360,Mlada Boleslav, Czech Republic is from outside the India and do not have any office in India, and is liable to pay service tax on his taxable services provided by him to M/s. SKODA Auto India Pvt. Ltd., E-76, MIDC Waluj, Aurangabad in India." 24. Neither in the show cause notice nor anywhere in the impugned order any material has been produced to establish that the appellant has been authorised by the Skoda Czech to pay service tax on their behalf. Therefore Rule 6 ibid cannot be applied to make the appellant liable to pay service tax on behalf of Skoda Czech. On the contrary, learned counsel for the appellant produced before us clause 14.1 of the Agreement which is as follows :- "14.1 The Agreement shall not be deemed to constitute either party as the agent or legal representative of the other party for any purpose. Neither party shall have any right or authority to assume, create or incur any liability or ob....