Skoda Auto Volkswagen India Pvt. Ltd. Vs Commissioner of Central Excise & Service Tax (CESTAT Mumbai)
The CESTAT Mumbai set aside the service tax demand of Rs. 2,31,03,922, along with interest and penalties, raised against Skoda Auto Volkswagen India Pvt. Ltd. for the period 2001-02 to 2003-04. The dispute concerned an agreement dated 01.10.2001 under which Skoda Czech granted the appellant a non-exclusive, non-transferable and non-assignable right to use its pre-existing technology, technical documentation, know-how and trademarks for manufacturing and assembling passenger cars in India, against lump-sum consideration and running royalty.
The Revenue treated the technical assistance and supply of technical know-how as “Consulting Engineer Services” under Section 65 of the Finance Act, 1994 and sought service tax from the Indian recipient under the reverse charge mechanism. The Tribunal examined whether the transaction constituted Consulting Engineer Services and whether service tax could be imposed on the recipient for the period preceding the introduction of Section 66A.
CESTAT Mumbai held that the core character of the agreement was a licence to use pre-existing intellectual property, rather than provision of consulting or engineering services. Skoda Czech had independently developed the technical documentation and know-how, and the appellant had not commissioned it to develop, design or engineer any product, process or solution specifically for its requirements.
The Tribunal further observed that, during the relevant period, a Consulting Engineer had to satisfy the statutory requirements under Section 65(31), including being a professionally qualified engineer or engineering firm and rendering advice, consultancy or technical assistance. Skoda Czech was a manufacturer and assembler of passenger cars and was not shown to be a professionally qualified engineer or engineering firm rendering engineering consultancy. Merely possessing and licensing engineering know-how did not convert the manufacturer into a Consulting Engineer.
The Tribunal therefore concluded that the transaction was a licensing arrangement involving pre-existing know-how and trademark rights, rather than a consulting arrangement. Since the services received were not Consulting Engineer Services, the service tax demand itself was unsustainable.
CESTAT Mumbai also held that, even assuming the transaction constituted Consulting Engineer Services, service tax could not be recovered from the appellant for 2001-02 to 2003-04 under the reverse charge mechanism, since Section 66A of the Finance Act, 1994, which enabled levy of service tax on the recipient of services from abroad, was introduced only with effect from 18.04.2006.
The Tribunal additionally found that Rule 2(d) of the Service Tax Rules, 1994 had been relied upon by the Commissioner even though it had not been invoked in the show cause notice, resulting in the adjudication travelling beyond the show cause notice. It also held that Rule 6 could not make the appellant liable because there was no material establishing that Skoda Czech had authorised the appellant to pay service tax on its behalf. Further, Rule 6 had been omitted with effect from 16.08.2002.
Following the principles discussed in the order, including the Tribunal’s earlier decision in Bajaj Auto Ltd., CESTAT Mumbai held that the demand was unsustainable. Both issues were decided in favour of the appellant, the Order-in-Original was set aside, and the appeal was allowed with consequential relief, if any, in accordance with law. The order was pronounced on 28.07.2026.
FULL TEXT OF THE CESTAT MUMBAI ORDER
