Custom, Excise & Service Tax Tribunal
M/S. Nypro Forbes Products Ltd vs Commissioner Of Service Tax, Chennai on 7 February, 2008
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
S/PD/197/2007 and S/266/2007
(Arising out of Order-in-Revision No. 03/2007 dated 23.8.2007 passed by the Commissioner of Central Excise, Chennai - III)
For approval and signature:
Honble Mr. P. G. Chacko, Member (Judicial)
1. Whether Press Reporters may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether the Member wishes to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
M/s. Nypro Forbes Products Ltd. Appellants
Vs.
Commissioner of Service Tax, Chennai Respondent
Appearance Ms. Natasha Jhaver, Consultant for the Appellants Shri M.K.A.K. Mohideen, JDR, for the Respondent CORAM Honble Mr. P. G. Chacko, Member (J) Date of Hearing: 07.02.2008 Date of Decision: 07.02.2008 Final Order No. ____________ After examining the records and hearing both sides, I am of the view that the appeal itself requires to be finally disposed of at this stage. Accordingly, after dispensing with predeposit, I take up the appeal.
2. The appellants had entered into a Technical Collaboration Agreement dated 11.9.2001 with M/s. Nypro Inc. (USA) and had thereunder obtained technical know-how, technical information and technical assistance from the foreign company for setting up in India a plastic injection moulding plant. The agreement also permitted the appellants to have access to modifications and improvements to the technical know-how during the tenure of the agreement [upto 31.3.2002]. In consideration of these services rendered by the foreign company, the appellants paid a fee of 5% of the net ex-factory price received by them on the total of sales of the above products during the tenure of the agreement. The impugned demand of service tax is on such fee called technical collaboration fee paid by the appellants to the foreign company during the period 10.9.2001 to 31.3.2002. It is in the category of consulting engineers service. The appellants have also challenged the penalty of Rs.1,000/- imposed on them under Section 77 of the Finance Act, 1994. The original authority had dropped the proceedings initiated by the relevant show-cause notice, but the Commissioner in his revisional jurisdiction raised the above demand of service tax on the appellants and imposed on them the above penalty as proposed in the show-cause notice.
3. It is the case of the appellants that any running royalty such as the technical collaboration fee in the instant case, paid as consideration for technical know-how and allied services received from abroad is not exigible to service tax in the category of consulting engineers service. It is submitted that it is covered by Intellectual Property Service introduced for the first time in the Finance Act 1994 in September 2004. In support of the appellants case learned consultant relies on the decision of this Bench in Turbo Energy Ltd. Vs. CCE, Chennai III 2006 (3) STR 678 (Tri. Chennai) as also the decision of the Tribunal in Yamaha Motors (I) Pvt. Ltd. Vs. CCE, Delhi IV (Faridabad) 2006 (3) STR 665 (Tri. Del.). Learned consultant has also referred to relevant provisions of the agreement so as to show that the agreement did not envisage technical assistance of the kind covered by the definition of consulting engineer, to be rendered to the appellants by the foreign company. She has particularly referred to Articles 2 and 6 of the agreement, the former laying down the scope of technical assistance to be rendered by the foreign company to the assessee and the latter laying down the nature of technical collaboration fee to be paid by the assessee. Learned JDR reiterates the Commissioners findings and particularly points out that, against certain decisions of the Tribunal against the Revenue on the question whether transfer of technology by a foreign company to an Indian company is exigible to service tax under Section 65(31) of the Finance Act, 1994 [consulting engineer], the department has filed appeal, which is pending before the Honble Supreme Court. On this basis, JDR submits that the case law cited by learned consultant cannot be considered to have attained finality. Further, learned JDR relies on the following decisions of the Tribunal:-
(i) Nokia (I) Pvt. Ltd. Vs. Commissioner of Customs, Delhi 2006 (1) STR 233 (Tri. Del.)
(ii) Indian Farmers Fertilizer Co-op. Ltd. Vs. Commissioner of Central Excise, Bareilly 2007 (5) STR 281 (Tri. Del.) In the case of Nokia (supra), it was held that training of personnel, software support, operation/maintenance, emergency support, technical consultancy etc. would come within the ambit of consulting engineers service. In the case of Indian Farmers Fertilizer (supra), it was held that, while technical know-how as intellectual property was not taxable, technical assistance rendered to an Indian company by a foreign collaborator in connection with use of technical know-how provided by the latter would be exigible to service tax. The DR has also made an endeavour to show, by referring to certain provisions of the agreement, that technical assistance of the kind envisaged under Section 65(31) of the Finance Act, 1994 was also rendered to the appellants by their foreign collaborator and that the fee paid by the appellants was in consideration for such service as well.
4. After giving careful consideration to the submissions, I note that there is nothing in the impugned order or in the submissions of learned JDR which stands following the view taken by this Bench in Turbo Energy case (supra). The DR has submitted that, as the appeal filed by the department against Navinon Ltd. Vs. CCE 2004 (172) ELT 400 (Tri. Mum.), relied on by this Bench in Turbo Energy case, was admitted by the apex Court, the case law cited by learned consultant is not liable to be followed. However, the DR has not given any citation in confirmation of his submission, nor has he claimed that, in any such appeal, the Honble Supreme Court has stayed the operation of the impugned order of the Tribunal. The case law cited by the DR does not advance the Revenues case either inasmuch as the facts of the Nokia case (supra) and the Indian Farmers Fertilizer case (supra) are clearly distinguishable from the facts of the instant case.
5. Section 65(31) of the Finance Act, 1994 defines consulting engineer as any professionally qualified engineer or any engineering firm, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. Any service rendered by a consulting engineer so defined is called consulting engineers service. After a thorough study of the provisions of the technical collaboration agreement, I have not found anything therein which suggests that technical assistance in any manner in one ore more disciplines of engineering was rendered to the appellants by professionally qualified engineers of the foreign company. In fact, the scope of technical assistance to be provided by the foreign company to the assessee was exhaustively laid down under Article 2, Sub-article (2.2) of the agreement. Nowhere under this article is there any mention of the disciplines of engineering in which assistance was offered by the foreign company to the assessee. Further, nowhere in this agreement is there any provision for qualified engineers of the foreign company in any discipline of engineering whatsoever to render any technical assistance of the kind envisaged under Section 65(31) ibid to the assessee during the tenure of the agreement. The findings of the Commissioner on the point are far from convincing.
6. Sub-article 6.1 under Article 6 of the Agreement reads as under:-
In consideration of the technical know-how and on-going access to modification and improvements thereto, and the licenses, rights and privileges granted or agreed to be granted hereunder, the Licensee shall pay to the Licensor a fee of 5% (five percent) of the net ex-factory price received by Licensee (Technical Collaboration Fee) on the total of its sales of contract products during the term of this agreement. Contract products shall be considered sold or otherwise disposed off, as the case may be, when invoiced. Licensee shall report its net ex-factory price for each financial year to Licensor within three (3) months after the close of such financial year, and pay the Technical Collaboration Fee to Licensor within thirty (30) days after receipt of Licensors statement therefor.
7. The technical collaboration fee @ 5% of the net ex-factory sale price of the contract products, paid by the assessee to their foreign collaborator, was in consideration of the technical know-how and on-going access to modifications and improvements thereto and the licences, rights and privileges granted or agreed to be grated to the assessee under the agreement. The Revenue has failed to show that any technical assistance rendered by the foreign company to the assessee would come within the scope of licences, rights, privileges or other relevant expressions used in the above provision of the agreement. In Turbo Energy (supra) a similar royalty paid by that party to their foreign collaborator during 2001-02 was held to be not exigible to service tax in the category of consulting engineers service. Similarly, in the case of Yamaha Motors (supra) the services of technical know-how, technical information, personnel instructions and training, rendered to the assessee by their foreign collaborator against payment of fee was held not chargeable to service tax in the category of consulting engineers service. Apparently, the service in question in the instant case is an intellectual property service on which service tax was not leviable prior to September 2004. There is another aspect, which also operates against the Revenue, in this case. The Revenue admits that the technical collaboration fee was paid by the assessee to their foreign collaborator mainly as consideration for transfer of technical know-how for the purpose of setting up a plastic injunction moulding plant in India. If that be so, a major part of the fee paid by the assessee under the technical collaboration agreement was consideration for technical know-how only, which admittedly is an intellectual property service. Only a small part of the fee paid by the assessee would even be regarded as consideration for the remaining services rendered by the foreign collaborator. The Commissioner has however demanded service tax on the entire amount of royalty paid by the assessee to the foreign collaborator without providing any break-up. This is also not permissible in law.
In the result the impugned order is set aside and this appeal is allowed.
(Dictated and pronounced in open court)
(P.G. CHACKO) Member (J)
Rex
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