Whether service tax is levied on royalty payment received by appellant prior to period of 10/09/2004?

PJ/Case Law/2013-14/1720

Case:-AMIT NAGINDAS VORA VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI

Citation:-2013-TIOL-1136-CESTAT-MUM

Brief Facts:-The appeal is directed against Order-in-Appeal no. BR (36)36/STC/2005 dated 27/09/2005 passed by the Commissioner of Central Excise (Appeals), Mumbai.

The appellant, Nagindas Jamnadas Vora obtained a patent bearing no. 187148 of 08/01/1998 for a new compact oil cooler which was allowed to be used by Vora Exclusive Tools Pvt. Ltd., for which he was entitled to receive royalty. The department was of the view that the appellantis liable to pay service tax on the royalty received amounting to Rs.5,96,620/- during the year 2000-01 to 2001-02 along with interest thereon under “Consulting Engineer's Service” and accordingly, a notice dated 29/04/2004 was issued demanding service tax along with interest and also proposing to impose penalties. The appellant contested the demand on the ground that he was only a matriculate and was not a qualified engineer to come under “Consulting Engineer's Service”. Nevertheless, the services rendered by the appellant were classified under “Consulting Engineer's Service”. The tax demands were confirmed along with interest and penalties were also imposed vide order dated 21/12/2004. The appellant preferred an appeal before the lower appellate authority, who mechanically confirmed the demands; hence, the appellant is before Tribunal.

Appellant Contention:-The appellant submits that the appellant is only a matriculate and is not a professionally qualified engineer. The definition of Consulting Engineer as per sub-clause (31) of section 65 of the Act is as given below:

"Consulting Engineer” 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”.

And vide section 65(105)(g) of the Act, the taxable service is defined as below:

“Taxable service” means any service provided, or to be provided to a client, by a Consulting Engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering".

Since the appellant is not a professionally qualified engineer, the services rendered by the appellant do not come under the category of “Consulting Engineer's Service”. It is also pointed out that the transfer of right to use the patent falls under “Intellectual Property Service”, which came under the tax net with effect 10/09/2004 and during the impugned period the said service was not taxable. Therefore, the impugned order is not sustainable in law and the appeal be allowed.

Respondent Contention:-The ld. Additional Commissioner (AR) appearing for the Revenue reiterated the findings of the lower authorities.

Reasoning of Judgment:-We have considered the submissions made by both the sides. It is an undisputed fact that the appellant is only a matriculate and does not hold any professional degree in Engineering, recognized by law. Therefore, the appellant does not qualify as a “Consulting Engineer” as defined in law. Secondly, the appellant was a patentee and transferred the right to use the patent to his client for consideration of royalty payment. The said service merits classification under “Intellectual Property Service' which came into tax net with effect from 10/09/2004. Since the period in dispute is much prior to that, there is no service tax taxability with respect to the services rendered by him.

In view of the above, the impugned order is not sustainable in law. Accordingly, the same is set aside and the appeal allowed.

Decision:-Appeal is allowed.

Comment:-The substance of this case is that appellant has transferred the right to use the patent to his client for the consideration of royalty. The said service merits classification under the category of “Intellectual Property Right” that was leviable to service tax with the effect from 10/09/2004. Since the period in dispute is much prior to that, there is not service tax liability with respect to services rendered by him.

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PJ/Case Law/2013-14/1720

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