Transfer of technical know-how is not covered ‘Consulting Engineer’s Service’.

PJ/Case law/2014-15/2259

Case:-COMMISSIONER OF SERVICE TAX, MUMBAI Vs LEIBERT CORPORATION

Citation:- 2014 (33) S.T.R. 161 (Tri. - Mumbai)

Brief facts:-This was Revenue’s appeal filed against Order-in-Appeal No. AT/679/M-III/2005, dated 26-12-2005 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-II.

The respondent, M/s. Leibert Corporation, USA, entered into a technical know-how agreement with M/s. Emerson Power Network (I) Pvt. Ltd. for supply of technical know-how and licence to the service-recipient in India for the rights to manufacture, sell and distribute and use licensed product and the technology in India. In consideration thereof, the service-recipient agreed to pay a lumpsum amount of US $ 3,00,000/- and a running royalty of 5%/8% on the domestic sale price of the product for a period of 7 years from the date of commencement of production. The Revenue was of the view that the service rendered by the foreign service provider was liable to Service Tax in India under the category of ‘Consulting Engineer’s Service’ and, therefore, a show cause notice dated 26-3-2003 was issued demanding Service Tax of ` 19,04,143/- for the services rendered during the period July, 1997 to December, 2001 along with interest thereon and also proposing to impose penalties. The notice was adjudicated vide order dated 13-9-2004 wherein the demands were confirmed along with interest and also penalties were imposed under the provisions of the Finance Act, 1994 on M/s. Leibert Corporation, USA. On appeal, the lower appellate authority held that, in view of the decisions of this Tribunal in the case of Navinon Ltd. v. Commissioner of Central Excise, Mumbai-VI - 2004 (172)E.L.T.400 = 2006 (3)S.T.R.397 (Tribunal), Yamaha Motors (India) Pvt. Ltd. v. Commissioner of Central Excise, Delhi-IV - 2005-TIOL-598-CESTAT-DEL = 2006 (3)S.T.R.665 (Tri.-Del.) = 2005 (186)E.L.T.161 (Tri.-Del.),the services rendered cannot be classified under heading ‘Consulting Engineer’s Service’ and accordingly allowed the appeal. The Revenue was aggrieved of the same and is before Tribunal.

Appellant’s contention:-It has been urged that the technical know-how provided by Leibert Corporation to Indian entity appears to be advice and technical assistance provided to a client and was liable to Service Tax under the category of ‘Consulting Engineer’s Service’. It was also stated that the Revenue has gone in appeal against the decision in the case of Navinon Ltd. (supra) before the Hon’ble High Court of Bombay and the matter was pending before the High Court [2008 (9) S.T.R.J114 (Bom.)] and, therefore, the lower appellate authority was wrong in his conclusions.

Respondent’s contention:-The learned counsel submits that the transaction involved in the present case was one of supply of technical know-how which includes supply of patents, trade secrets and other technical information and services has been rendered not in terms of any advice, consultancy or technical assistance and, therefore, the transaction does not attract provisions of ‘Consulting Engineer’s Service’. He relies on the decisions of this Tribunal in the case ofKinetic Engineering Ltd. v. Commissioner of Central Excise, Pune-I - 2012 (25)S.T.R.26and Aravind Fashions Ltd. v. Commissioner of Service Tax, Bangalore - 2007 (7)S.T.R.178 (Tri.-Bang.)affirmed by the Hon’ble Karnataka High Court [2012 (27)S.T.R.J112 (Kar.)], in support of his submissions. Accordingly, he prays for dismissing the Revenue’s appeal.

Reasoning of judgment:-On careful consideration of the submissions made by both sides, ‘Consulting Engineer’s Service’ relates to rendering of advice, consultancy or technical assistance in any branch of engineering to a client by a consulting engineer or an engineering firm. The said service does not, in any way, relate to supply of technical know-how which the respondent has undertaken in the present case. They have supplied to the client in India know-how by way of patents, trade secrets, processes, etc. so that the recipient in India can undertake manufacture of licensed products. In consideration thereof, royalties/licence fees had been paid by the recipient to the service provider. This activity, by no stretch of imagination, can be considered as coming within the purview of ‘Consulting Engineer’s Service’. This Tribunal in the case of Aravind Fashions Ltd. which has been affirmed by the Hon’ble High Court of Karnataka, and in the case of Kinetic Engineering Ltd. (cited supra) has clearly held that transfer of technical know-how does not come within the purview of ‘Consulting Engineer’s Service’. The same view was held by the Tribunal in the case of Navinon Ltd. (supra), which is pending before, the Hon’ble High Court. It is informed by the learned counsel for the respondent that the said decision of this Tribunal has not been stayed. In view of the above, we are of the considered view that the activities undertaken by the respondent in the case is not exigible to service tax under the category of ‘Consulting Engineer’s Service’.

In view of the above findings, the appeal filed by revenue is dismissed as being devoid of any merits.

Decision:-Appeal dismissed.

Comment:-The analogy drawn from the case is that payment of royalties, licence fees by service recipient to service provider for transfer of technical know-how are not covered by the service of ‘Consulting Engineer’s Service’ and therefore the demand of service tax was quashed.

Prepared by: Pooja Mehta

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PJ/Case law/2014-15/2259

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