Transfer of technical know-how and patent under slump sale is not leviable to service tax

Gharda Chemicals Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)

CESTAT Ahmedabad held that transfer of technical know-how and patent etc. are in pursuance to the slump sale and not by way providing the service do not fall within the definition of “Scientific and Technical Consultancy Service” and “Intellectual Property Service”. Accordingly, demand of service tax not sustainable.

Facts- The appellant was engaged into polymer business through its Polymer division located at Panoli, district Bharuch. The Appellant intended to sell the said Division as a going concern, accordingly they had entered into a Sale and Purchase agreement with M/s Solvay Specialties India Pvt. Ltd. (M/s SSIPL) for sale of the division on a going concern basis for a lump sum consideration of Rs. 169,34,95,385/-.

During the course of scrutiny of agreement, it appeared that they entered into agreement for transfer of all propriety invention, design, idea process, methods, right of Patent and other technical know-how in terms of sale and purchase agreement. During the course of scrutiny of documents/ records submitted by the M/s SSIPL it was also observed that Polymer Division of Appellant was completely transferred to M/s SSIPL for a consideration of Rs. 1,69,34,95,385/-. Further the valuation report showed the value of Goodwill/ Brand, patent & technical know-how and other assets reflected the total valuation of the company at Rs. 1,69,34,95,385/- Whereas as per valuation report M/s Gharda Chemical Limited it appears that they sold the Polymer Division along with Services associated with for operation of plant and maintenance of quality of polymers. However they did not mention the bifurcation of value of service as well as Assets thereof as above on the sale and purchase agreement 9th May 2006 (Completion Memorandum) executed with M/s SSIPL. Whereas it appears that on 14.10.2005 the appellant and M/s SSIPL entered into a supplemental agreement which contain schedule I to XII along with Annexure A&B. On scrutiny of the said schedule-IV, it was observed that products Sr. No. 01 to 03 have already been registered patents and Sr. No. 4 is for patent already applied and Sr. No. 5 is for patents being applied for. Therefore the technical knowledge supplied for manufacturing if unregistered products as appearing at Sr. No. 4 and 5 comes under Technical Know how, and comes under purview of taxable service of category “Intellectual Property Services [Section 65(105)(zzr)]. It was contended that in the instant case Appellant has supplied their own invention and scientific discovers without clarification and bifurcation of the value in the sale and purchase agreement thereof. Statement of both the company personnel was recorded by the department.

A show cause notice dated 21.10.2011 came to be issued where-under service tax amount of Rs. 4,20,99,688/- was demanded from the appellant u/s. 73 of the Finance Act, 1994 along with interest on the taxable value of Rs. 34,39,51,700/- received against the transfer of patent and technical know-how and the penal provisions as provided u/s. 76, 77 and 78 of the Finance Act, 1994 have also been invoked in the show cause notice. Commissiner confirmed the said demand. Accordingly, appellant preferred the present appeal.

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