By TIOL News Service

NEW DELHI, FEB 16, 2016: A total Service Tax demand of Rs. 77,56,528/- for the period April 2005 to March 2008 was confirmed along with interest and penalties by the CST, Delhi.

The demand comprises of –

++ Technology Transfer fee paid to Whirlpool, USA during April, 2007 to March, 2008 - Service Tax of Rs.45,29,167/-

++ Brand Fee - Service Tax of Rs.9,97,608/- short paid

++ Cenvat credit of Rs.22,29,753/- for non-maintenance of separate records for taxable and exempted services.

The appellant is before the CESTAT and inter alia submits –

++ The agreement between Whirlpool Corporation, USA and the appellant clearly shows that it was an agreement for technology transfer and not for intellectual property. As per the agreement the purpose was supply of technology/information available with Whirlpool USA and, therefore, does not fall within the scope of intellectual property right. It was paying service tax on the brand fees under intellectual property rights service.

++ R&D cess has been paid on technology transfers and the service tax on the brand fee under intellectual property rights service was rightly paid after deduction of such R&D cess in terms of Notification 17/2004-ST which fact was not taken into account by the adjudicating authority.

++ The appellant was not providing any exempted services and, therefore, there was no requirement for maintaining separate accounts and so there was no limit of 20% on utilisation of CENVAT credit - the Commissioner acknowledged this fact yet confirmed the demand.

++ The demands on technical transfer fee and relating to R&D cess were similarly raised earlier in a show cause notice dated 17/10/2008 for the period 2005 - 06 and 2006 - 07 and, therefore, the extended period cannot be invoked.

The AR reiterated the findings of the adjudicating authority.

The Bench observed –

I. Cenvat credit of Rs.22,29,753/-

+ We find that the copy of the ST-3 return submitted by the appellant shows that it was not providing any exempted service. The contention of DR that the ST-3 returns referred to in the show cause notice are different from the ST 3 return referred to by the appellant. Revenue could not show copies of the ST3 returns referred to in the show cause notice to substantiate its contention.

Incidentally, the adjudicating authority recorded in his order that - …this view of the adjudicating authority (that appellant has not provided any exempted services) has not been accepted in review in noticee's similar case for previous period. In view of the foregoing and guided by the principal of judicial discipline, I am bound to adopt the views taken in review by the Committee of Chief Commissioners and hold that the notice is providing exempted service along with taxable services…

To this, the CESTAT observed –

+ The adjudicating authority is however wholly wrong in observing that judicial discipline requires him to be bound by the views of the Review Committee of Chief Commissioners. Adjudicating authority is only bound by the orders of the superior adjudicating authority like CESTAT and the observations of the Committee of Chief Commissioners are of administrative nature and not of quasi-judicial nature to have any binding effect on adjudicating authority. Thus there is no doubt that even in the opinion of the adjudicating authority, component of demand confirmed on account of non-maintenance of separate accounts of taxable and exempted services is not sustainable.

II. Technology Transfer fee - Service Tax demand Rs.45,29,167/-

+ It is evident that the agreement is entered for the purpose of supply of technology/technical assistance/information by Whirlpool, USA to the appellant and the remuneration received by Whirlpool, USA is only for the use of the same by the appellant. There is nothing on record that any of the said technology/technical know-how/information is registered or patented under Indian law.

+ The appellant is also paying to Whirlpool, USA brand fee on which it is discharging service tax. The amount on which service tax has not been paid relates to technical assistance and supply of technology by Whirlpool USA in terms of the said agreement. Transfer of technology and technical assistance do not fall in the ambit of intellectual property rights service as Revenue has not shown that they were recognised under any law in India during the relevant period of 2007 - 08. [Board circular No. 80/10/2004 dated 17/09/2004 refers]

+ Thus only such intellectual property rights which are covered under Indian law in force alone are chargeable to service tax under IPR service. The Commissioner does not identify any Indian law under which the technology transfer and technical assistance involved in this case is covered.

+ The Commissioner has not taken into account the contentions of the appellant and has come to summary conclusion that technology transfer fee is liable to service tax under Intellectual Property Service. We find it totally nonspeaking and devoid of any reasoning. [ Tata Consultancy Services Vs. Commercial Service Tax - 2015-TIOL-2370-CESTAT-MUM & Thermax Ltd. Vs. Commissioner of Central Excise Pune - 2013-TIOL-1092-CESTAT-MUM relied upon.]

III. Brand Fee - Service Tax of Rs.9,97,608/- short paid

+ It is evident that in terms of the above notification[17/2004 dated 10/09/2004], service tax on IPR service is exempt only to the extent of the R&D cess paid towards the import of technology under the provisions of Section 3 of the R&D Cess Act, 1986 in relation to such intellectual property service (emphasis added) . It is admitted that no service tax was paid under IPR service on the amount paid for such technology transfer which means that the appellant also was of the view that such technology transfer was not in relation to IPR service.

+ Consequently, the appellant was not eligible to deduct the R&D cess it paid on technology transfer from the service tax payable under IPR service as such technology transfer was not in relation to intellectual property service. Thus the component of impugned demand amounting to Rs.9,97,608/- is sustainable on merit.

IV. Limitation

+ The components of demand on technology transfer and with regard to R&D cess were the subject matter of an earlier show cause notice dated 17.10.2008 issued to the appellant covering an earlier period 2005-06 & 2006-07 and therefore in the light of the judgements of Supreme Court in the case of Nizam Sugar factory - 2006-TIOL-56-SC-CX and Pushpam Pharmaceutical Company Vs. CCE, Bombay - 2002-TIOL-235-SC-CX , the extended period in the present case is not invocable which will make these components of the impugned demand time-barred because the show cause notice was issued on 05/04/2010 for the period up to March 2008.

In fine, the entire demand was held to be not sustainable.

The Order passed by the Commissioner of Service Tax, Delhi was set aside and the appeal was allowed.

(See 2016-TIOL-426-CESTAT-DEL)