Case Law Details
SUMMARY
A transaction in intellectual property (IP) along with the right to manufacture the licensed product is totally different from the technical assistance rendered by an engineer or a firm of engineers; when IP services are brought under the tax net without altering the scope of “Consulting Engineer Service” the new impost covers an activity hitherto not exigible to service tax under the head Consulting Engineer.
RELEVANT PARAGRAPHS:
3. I have carefully considered the case records and rival submissions. A perusal of the relevant agreement governing the provision of the impugned services indicates mat BEGELB rendered intellectual property sendee to LGB. The agreement envisaged provision of service in the following terms.
1. M/s. B.E.GELB Consulting Services will provide Technology transfer services to L.G. Balakrishnan & Bros. Ltd. from 1st April 1997 to 31st March, 2007.
2. BEGELB will provide Technical know-how and complete product design and engineering specifications and relevant advice including designs and details for manufacturing tools, machines, quality7 control machines for manufacture of inverted tooth silent chains.
3. It will provide detailed design for plain and guide link stamping dies and tools.
4. It will provide concept and design layouts for the production of automotive silent chain.
5. It will provide technical consultation on upgradation of technology.
6. It will provide technical and commercial advise and counsel on how to market the products.
7. It will visit offices and factories of LGB on quarterly basis for this purpose.
8. It will provide technical know-how for a fee of US$ 9,85,000.
9. LGB has to pay 8% & 5% respi-riively of the sale price of the chains for export and domestic sale its royalty for 7 years to BEGELB under this technology transfer agreement.
I find that the agreement envisages provision ot technical know how to manufacture automotive chains and ancillary equipment for the purpose. In order to effectuate the object of the agreement BEGELB also trained LGB’s staff and visited its factory for supervision. Appellant is compensated through royalty payments and payment of technical know how fees. All die various activities BEGELB undertook were to achieve the basic purpose of the contract, namely, manufacture of automotive chains. Therefore the service provided was “Intellectual Property service” (IP Sendee). IP Service was brought under the Service Tax net with effect from 10.09.04. That activity cannot be taxed under Engineering Consultancy for a period prior to 10.09.04 unless such an intention was made clear by appropriate changes effective from 10.09.04 made to the heading “Consulting Engineer”. The appellant had transferred technical know how required for the production of automotive chains. By definition, intellectual property service is transferring or permitting the use or enjoyment of any intellectual property right. The same has been defined vide clause 55 A of Section 65 of the Act as any right to intangible property such as trade marks, designs, patterns. I find that if the transfer of intellectual property deploys its staff to train its client’s personnel in applying the know-how, that is incidental to the main object of the agreement namely, transfer of technical know-how, the service rendered remains IP Service. As per a Circular issued by (lie CBEC, Engineering Consultancy envisages services in the nature of technical advice rendered by a professionally qualified engineer or. a firm of such engineers, in the feasibility, basic design, detailed design, construction, commissioning and running of a project which also includes training of manpower, trouble shooting, and establishing system etc. A transaction in intellectual property along with the tight to manufacture the licensed product is totally different from the technical assistance rendered by an engineer or a firm of engineers. When intellectual property services were brought under the tax net without altering the scope of “Consulting Engineer service”, the new impost covers an activity hitherto not exigible to service tax under the head “Consulting Engineer”. The impugned services appropriately classifiable under intellectual property service and not under consulting engineer’s service. The material period for die demand terminated in 2002 whereas IP services that covered the activity was brought under tax net only in from September 2004. Therefore, the impugned order, is nor sustainable and is liable to be set aside. In Same Engines India (P) Ltd., case (supra) this Tribunal held that prior to 16.8.02 service lax could not be collected from a service recipient in India for services received from a foreign company/person. In both the case law cited, it was held that a recipient of what the authorities held to be engineering consultancy prior to 16.8.02, from a foreign service provider, was not liable to discharge the tax liability. This ratio is not relevant to die case on hand. However, in Motherson Automotive Tech. & Engg.’s case (supra), it was held that the appellants therein had not received engineering consultancy when it received technical know how in exchange for a lumpsum payment or payment of royalty. In the instant case, the technical fee paid over a period of time did not cease to be compensation received in exchange for technical know-how. The payment is not exigible under engineering consultancy.
4. I find that the impugned order found that BEGLEB rendered technical know how, an intangible property, for which it had received royalty .The proceedings did not seek to recover service tax on royalty paid by LGB at the rate 8 per cent of the sale price of product manufactured with the know how in terms of the agreement. In addition to royalty, LGB paid technical know how fees quarterly since July 1997. This was found to be consideration for engineering consultancy received by LGB. The Tribunal had held in Diebold Systems (P.) Ltd. v. CST, reported in [Final Order No. 6-9-2008, dated 28-11-2007] as follows:
“Introduction of a new entry for the purpose of levy of tax presupposes that it was not covered by any of the pre-existing entries. In other words, in the ever-widening sphere of service tax, addition of an item to the list of taxable services is just an addition, and not a subtraction from a pre-existing entry. This reality was noted by this Tribunal in the case of Glaxo Sinithkline Pharmaceuticals (supra). In that case, certain service rendered by the company was found to be in the category of “Business Auxiliary Service” as claimed by them and not “Management Consultancy Service” as claimed by the Revenue. ‘Business Auxiliary Service’ was introduced in July 2003 when the other sendee was already on the statute book. After noting that the definition of “Management Consultancy Service1* remained the same even after introduction of ‘Business Auxiliary Service’ as a taxable service, the Tribunal rejected the Revenue’s plea that the service provided by the assessee could still be taxed as “Management Consultancy Service” for the period prior to July 2003.”
