Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Unknown on 29 September, 2010
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT-II
Appeal No.ST/228/06
Arising out of OIO No.01/Service Tax/Commr-I/2006, dt.10.05.06
Passed by: Commissioner of Central Excise & Customs (Appeals), Vadodara
For approval and signature:
Honble Mrs. Archana Wadhwa, Member (Judicial)
Honble Mr. B.S.V. Murthy, Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant/s M/s. Haldor Topsoe A/S
Represented by Shri P.K. Salve, Adv
Vs.
Respondent/s CST Vadodara
Represented by Shri J.S. Negi, SDR CORAM:
MRS. ARCHANA WADHWA, MEMBER (JUDICIAL) MR. B.S.V. MURTHY, MEMBER (TECHNICAL) Date of Hearing :29.09.10 Date of Decision:
ORDER No. /WZB/AHD/2010 Per: MR. B.S.V. Murthy:
The appellant is a company incorporated under the law of Denmark having its principal office at Nymollevej 55, P.O. Box 213. DK 2800 Lyngby, Copenhagen, Denmark. It had entered into an agreement no.IOCL/SEEC/004 dt.20.09.2000 with M/s. IOCL, under which it has to supply know-how, PSA Unit know-how, Process Package, PSA Unit Process Package, Services for Hydrogen Plant and Detailed Engineering of Reformer Package to IOCL in the form of technical documentation. The activities were performed outside India and the appellant had provided the technical information to the officials of IOCL at their office in Denmark only. The appellant was entitled for a lumpsum amount for supply, delivery and transport of know how of process package, supply and delivery of detailed engineering of reformer package, supply of supervision services, supplying delivery and transfer of PSA Unit know how and PSA unit process package and training. No amount was received by it towards supervision service and theoretical and practical training.
2. The appellant received two identical show cause notices dated 25.04.05, from the Deputy Commissioner of Central Excise and Customs, Division-III, Vadodara-I, in which he proposed to levy service tax amounting to Rs.58,89,541/- and Rs.5,39,334/- along with interest and penalty on the ground that the appellant had rendered taxable service under the category of consulting engineers service to IOCL.
3. As per the corrigendum dated 01.09.05, the matter was heard by the Commissioner, Central Excise & Customs, Vadodara-I. The Commissioner in its impugned order dated 10.05.06, has confirmed the demand of service tax along with interest and imposed the penalty Rs.100/- per day from the date when the service tax demanded was to be deposited, Rs.1000/- and Rs.64,28,875/- under section 76, 77 and 78 of the Finance Act, 1994, respectively.
4. The learned advocate for the appellant submitted that the findings of the Commissioner are not sustainable on the following grounds:
i. Technical and engineering information provided under the agreement is know-how and not engineering consultancy as decided by the Commissioner. In Indian Farmers Fertilizer Coop. Ltd. Vs. CCE, Bareilly, 2007 (5) STR 281 (Tri. Del.), similar transaction of the appellant herein with IFFCO was taxed as consulting engineers service. In this case, the Honble Tribunal held that supply of know how as intellectual property was not taxable as consulting engineers service. Only the amount received towards technical assistance in India would be taxable. In the case of the appellant, no amount was received for technical assistance in India. Therefore, the activities of the appellant were not taxable in the first place.
ii. Under the agreement (Clause 4.7.3 Page 88 of the Appeal Memo), IOCL was required to pay service tax. The Supreme Court in Kerala State Electricity Board Vs. CCE, Thiruvananthapuram, 2008 (9) STR 3 (S.C), has held that, where the liability to pay service tax is on the Indian company, and the foreign company rendering the service does not have any office in India, the tax was payable by the Indian company and not by the foreign company. The appellant is not having any office in India. Therefore, it is not required to pay service tax.
iii. The services have been rendered outside India. In All India Fed. of Tax Practitioners Vs. Union of India, 2007 (7) STR 625 (S.C.), the Supreme Court has held that service tax is leviable on services in India. Therefore, the appellant was not liable to pay tax on its activities outside India. Further, section 66A, providing for taxability of import of service under reverse charge mechanism was inserted only w.e.f. 18.04.06. For this reason also, service tax was not payable for the period iv. The Commissioner has wrongly interpreted the engineering consultancy service as defined in the Finance Act, 1994. It was the agreement for exploiting its intellectual property by giving it to the appellants. In this commercial transaction, there is no element of any service, much less of engineering consultancy.
v. The Commissioner has failed to appreciate that the appellants entered into transaction dealing with property and not for any service. Therefore, no service tax is payable under the agreement.
vi. The engineering package was prepared in Denmark and sent to India. The consideration paid for supply of the Engineering design package would amount to sale of goods and not of rendering any service.
vii. Even if transfer of know-how is considered as service, the know-how was delivered outside India. The Commissioner has failed to appreciate that service tax cannot be imposed on the services rendered outside the taxable territory provided under the Finance Act, 1994. He has rejected the appellants contentions on the ground which has no legal basis.
viii. There is no justification for levy of any penalty on the appellants.
5. The learned DR on behalf of the Revenue relied upon the decision of the Tribunal in the case of B.E. Gelb Consultancy Services Vs. CCE Coimbatore reported in 2009 (14) STR 241 (Tri. Chennai) in support of his contention that transfer of technical know-how and training of staff by foreign service provider and know-how transfer to Indian client by e-mail would amount to providing of services in India. Further he relied upon the decisions of the Larger Bench of the Tribunal in the case of BSBK Ltd. reported in 2010 (253) ELT 522 (Tri. LB) in support of his contention that the contract between the two parties cannot be considered as a turn key project and he submitted that in this case the intention of the parties to the contract was to treat each part separately. Further he also submitted that the Commissioner discussed in detail as to how and why the services provided by the appellant amounts to consulting engineer service.
6. We have considered the submissions made by both the sides. We consider that it would not be necessary to go into all the detailed arguments presented by both the sides in view of the fact that the decision of the Honble Supreme Court in the case of Kerala State Electricity Board (KSEB) cited above was not under consideration before the Commissioner. In that case KSEB had argued that the service was not provided in India and the service provided did not attract service tax since what was provided was not consulting engineer service. The question of liability of the service provider was not discussed on the ground which was considered by the Honble Supreme Court in the case of Kerala Electricity Board by the Commissioner. The Honble Supreme Court in paras 12 to 17 had discussed the liability of the service provider and the service receiver in that case.
12.?Sub-rule (1) of Rule 6 of Service Tax Rules, as applicable at the relevant time, stipulated that in case of a person who was from outside India and did not have any office in India, the service tax due on the service rendered by him should be paid by such person or on his behalf by any other person authorized by him should submit to the Commissioner of Central Excise in whose jurisdiction the taxable services have been rendered by him a return containing specific details with necessary enclosures. Such returns along with a demand draft have to be submitted within a period of 30 days from the date of raising the bill on the client for the taxable services rendered.
13.?We may furthermore notice that in terms of the proviso appended to sub-rule (1) of Rule 6 of Service Tax Rules, it is provided that in case of a person who was a non-resident or was from outside India and who did not have any office in India, the service tax due on the service rendered by him should be paid by such person or on his behalf by another person authorized by him who should submit to the Commissioner of Central Excise in whose jurisdiction the taxable services had been rendered, a return containing specific details with necessary enclosures.
14.?The High Court has arrived at a finding of fact that the foreign company did not have any office in India. It is not in dispute that the terms of the agreement entered into by and between the appellant and foreign company at all material time, show that the responsibility of meeting the service tax liability was on the service recipient and despite the amendment of Rule 6 (1) w.e.f. 16-8-2002 agreement still held good as the service recipient being the appellant had taken up the responsibility of meeting the liability of the foreign company.
15.?Clause 16.1 of the contract obligated the foreign company responsible only for filing of returns, estimates, accounts, information and details complete and accurate in all respects as may be required by any law or regulation. Only in the event the foreign company did not comply with the said requirements resulting in imposition of any penalty, interest or additional liability, the same shall be borne by it. Clause 16.1 did not cast any obligation upon the foreign company to make the payment of tax; the same is being the liability of the appellant.
16.?Submissions of Mr. Iyer that the payment of interest was the statutory liability of the service provider must be considered in the aforementioned context. If Appellant itself was liable for payment of tax, it was also liable for payment of statutory interest thereupon, if the same had not been deposited within the time stipulated by the statute. The liability to pay tax was not on the foreign company. Only on default on the part of the appellant the interest was leviable. Appellant was clearly liable therefor. In other words, the liability being that of the appellant, it must accept the liability of payment of interest leviable thereupon in terms of statute occasioned by the breach on its part to deposit the amount of tax within the prescribed time.
17.?Proviso appended to Rule 6 which has been inserted w.e.f. 28-2-1999 cast a liability upon a person authorized by the foreign company to do it in that behalf. The details were to be furnished by a person who was authorized. Clause (2) of the proviso provides for submission of the demand draft within 30 days from the date of raising the bill. Appellant being the person authorized to make payment of the service tax, Section 75 would come into operation in the event of its failure to do so.
7. The observations of the Honble Supreme Court In other words, the liability being that of the appellant, it must accept the liability of payment of interest leviable there upon in terms of statute occasioned by the breach on its part to deposit the amount of tax within the prescribed time. In this case as submitted by the learned counsel, Honble Supreme Court had come to the conclusion that the liability to pay service tax was on the service receiver and therefore the payment of interest also was to be made by the service receiver.
8. In this case show cause notices had been issued to both the appellant (service provider) as well as IOCL the service receiver. The Commissioner has held that IOCL was not liable to pay service tax in view of the absence of statutory provision making the service receiver liable to pay was not in existence. He has also taken note of the clause 4.7.3 of the agreement providing for payment of service tax by M/s. IOCL and of payment of interest and penalties levied on HTAS by Indian Tax authorities is to be paid by M/s. IOCL but held that it is for the parties to enforce the contract and such a clause cannot do away with the liability of HTAS on this account. Since the decision of Honble Supreme Court or the Honble High Court of Kerala was not available during relevant time, the issue needs to be reconsidered by the Commissioner. Furhter, we also take note of the fact that the decisions in the case of Indian Farmers Fertilizers Cooperative Ltd., All India Federation of Tax Practitioners were also not available and the other decision cited by the learned advocate were also not available during the relevant period. Whether the issues arising in this case are covered by these decisions or not and who should be liable to pay service tax are matters which are to be reconsidered. In view of the above discussion, we set aside the impugned order and remand the matter to the Commissioner for fresh adjudication after giving the concerned parties fresh opportunity to present their case. We make it clear that we have not gone into merits of the case.
(Pronounced in Court on ___________________)
(Archana Wadhwa) (B.S.V. Murthy)
Member (Judicial) Member (Technical)
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