Custom, Excise & Service Tax Tribunal
Bharat Electronics Ltd vs Bangalore-Ltu on 10 March, 2025
ST/2020/2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 2020 of 2011
(Arising out of Order-in-Original No. 19/2011-ST (Commr) dated
23.03.2011 passed by the Commissioner of Central Excise and
Customs, Large Taxpayer Unit, Bangalore.)
Bharat Electronics Limited, Appellant(s)
Jalahalli Post,
Bangalore - 560 013.
VERSUS
The Commissioner of Central
Excise and Customs Large
Taxpayer Unit (LTU) Respondent(s)
JSS Towers, 100ft Ring Road, Banashankari III Stage, Bangalore - 560 085.
APPEARANCE:
Mr. N. Anand, Advocate for the Appellant Mr. M.A. Jithendra, Assistant Commissioner (AR) for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MR PULLELA NAGESWARA RAO, MEMBER (TECHNICAL) Final Order No. 20378 /2025 DATE OF HEARING: 10.03.2025 DATE OF DECISION: 10.03.2025 PER : DR. D.M. MISRA This is an appeal filed against Order-in-Original No. 19/2011-ST (Commr.) passed by the Commissioner of Central Excise and Customs, Bangalore.
2. Briefly stated the facts of the case are that during the course of scrutiny of the records, it was noticed by the Department that the appellant had entered into Technical Page 1 of 7 ST/2020/2011 Collaboration Agreements with various companies viz. (i) M/s. Thales Electron Devices, France, (ii) M/s. Ericsson NW System, Sweden, (iii) M/s. ELTA Electronics, Israel. As per the said agreements, the appellant received know-how and technical information, training and technical assistance, Right and Licence to use know-how for manufacture of the licensed products, purchase assistance and manufacturing and selling rights from the said overseas companies. As consideration for the services received, the appellant agreed to pay Fixed Fee/Licence Fee/Training Fee and Royalty to such overseas companies. During the period 2005-06 to 2008-09 they paid an amount of Rs.30,60,71,000/- to the foreign service providers who did not have office in India. Consequently, a show-cause notice was issued to the appellant for recovery of the service tax of Rs.3,42,75,575/- for the amount paid against the taxable service received during the relevant period with interest and penalty. On adjudication, the demand was confirmed with interest and penalty under Sections 76, 77 and 78 of the Finance Act, 1994. Hence, the present appeal.
3.1 At the outset, the learned advocate for the appellant has submitted that the appellant is a Government of India undertaking under the Ministry of Defence and is one of "NAVARATNA" companies of the Government of India. For the purpose of manufacture and sale of the electronic equipments to Ministry of Defence; the appellant entered into Technical Collaboration Agreements with various overseas companies/entities; in terms of which, the appellant has been granted (i) non-transferrable and exclusive right/license to manufacture and sale the licensed products only to Ministry of Defence and (ii) license to use 'know-how' including technical information, the technical assistance and training. Consequently, the appellant had paid lumpsum license fee, royalty, training fee and technical assistance fee. He has submitted that it is Page 2 of 7 ST/2020/2011 significant to know that all the above agreements entered with foreign companies much prior to 10.09.2004 i.e. the date from which IPR services became taxable and prior to 18.04.2006 i.e. prior to introduction of Section 66A of the Finance Act, 1994. Under bona fide belief that they were not required to pay service tax in respect of the services received and consideration paid to the foreign companies, the appellant did not pay any tax nor filed returns with the Department. In support, they referred to the following case laws:
(a) Indian National Shipowners Association v. UOI, 2009 (13) STR 235 (Bom.) affirmed by Honorable Supreme Court in 2010 (17) STR J57 (SC).
(b) CST v. Denso Haryana Pvt Ltd, 2016 (42) STR 754 (Tri-Del.).
(c) Reliance Industries Ltd v. CCE, 2016 (44) STR 82 (Tri-Mum.).
(d) Reliance Industries Ltd v. CCE, 2008 (10) STR 243 (Tri- Ahmd.).
(e) CST v. Consulting Engineering Services (1) Pvt Ltd, 2013 (30) STR 586 (Del.).
(f) CCE v. Matsushita TV & Audio India Ltd, 2006 (1) STR 162 (Tri-Del.).
(g) Modi-Mundipharma Pvt Ltd v. CCE, 2009 (15) STR 713 (Tri-
Del.).
3.2. The learned advocate has further submitted that in terms of the Technical Collaboration Agreements entered with overseas companies which were entered prior to 10.09.2004; thus, levy of service tax under the category of IPR service is untenable in law and hence demand confirmed cannot be sustained.
3.3. Further, he has submitted that the issue whether license fee and royalty and other sums paid by the appellant to foreign companies for receiving technical know-how, technical information is liable to service tax under the category of Intellectual Property Service (IPR) is no longer res integra and settled in favour of the assessee by a series of decisions of this Tribunal. It has been consistently held that know-how including Page 3 of 7 ST/2020/2011 technical information and assistance is not recognised as Intellectual Property Service (IPR) by any Indian law for the time being in force and even as per CEBC Circular F.No. B2/8/2004- TRU dated 10.09.2004, know-how is undisclosed information which is not covered by any Indian law and hence transfer of know-how including technical information and assistance would not fall under the definition of "IPR" and not liable for payment of service under Section 65 (105)(zzr) of the Finance Act, 1994. In support, he referred to the following judgments as follows:
(a) GE Medical Systems (India) Pvt Ltd v. CST Final Order No.21617/2024 dtd.13.12.2024 passed by this Honorable Bench/Tribunal.
(b) GE BE Pvt Ltd v. CST - Final Order No.21243/2024 dtd. 12.12.2024 passed by this Honorable Bench/Tribunal.
(c) Intas Pharmaceuticals Ltd v. CST, 2024 (388) ELT 251 (Tri- Ahmd.).
(d) Hindustan Aeronautics Ltd v. CST, 2020 (38) GSTL 75 (Tri- Bang.).
(e) Munjal Showa Ltd v. CCE, 2017 (5) GSTL 145 (Tri-Chan.) affirmed by Honorable Supreme Court reported in (2023) 8 Centax 153 (SC).
(f) Lurgi India International Services Pvt Ltd v. CCE, 2020 (34) GSTL 507 (Tri- Hyd.).
(g) Schneider Electric India Pvt Ltd v. CST, (2023) 9 Centax 362 (Tri-Chan.).
(h) Technova Imaging Systems Pvt Ltd v. CCE, 2019 (31) GSTL 472 (Tri- Mum.).
(i) ABB Ltd v. CCE, 2019 (24) GSTL 55 (Tri-Bang.).
(j) Asea Brown Boveri Ltd v. CCE, 2017 (49) STR 209 (Tri- Bang.).
(k) Reliance Industries Ltd v. CCE, 2016 (44) STR 82 (Tri- Mum.).
(1) Chambal Fertilizers & Chemicals Ltd v. CCE, 2016 (45) STR 118 (Tri-Del.).
(m) Tata Consultancy Services Ltd v. CST, 2016 (41) STR 121 (Tri-Mum.).
(n) Lifecell International Pvt Ltd v. CCE, (2023) 7 Centax 235 (Tri-Mad.).
(0) Crest Speciality Resins Pvt Ltd v. CCE, (2024) 15 Centax 163 (Tri-Ahmd.) 3.4. Further, he has submitted that the demand is not sustainable on merit and also invocation of extended period and imposition of penalties cannot be sustained.
Page 4 of 7ST/2020/2011
4. The learned (AR) for the Revenue has reiterated the findings of the learned Commissioner.
5. Heard both sides and perused the records.
6. The short issue involved in the present appeal for consideration is whether the amount paid by the appellant as consideration for receiving know-how technical information, technical assistance and training is liable to service tax under Intellectual Property Right (IPR). The appellant has advanced a two-fold argument submitting that the relevant Technical Collaboration Agreements were entered with the respective foreign companies prior to 10.09.2004 i.e. before levy of service tax on Intellectual Property Right (IPR) services; secondly, that the said services do not come under the scope of Intellectual Property Right (IPR) Services.
7. The said issues could not dwell as much as these are no more res integra and covered by the judgment of this Tribunal in a series of cases. This Tribunal in the case of CST vs. Denso Haryana Pvt. Ltd. [2016 (42) STR 754 (Tri.-Del.)], in similar circumstances examining the applicability of IPR services to agreements entered prior to 10.09.2004, held as follows:
5. Having heard both the sides and examined the terms of the agreement and other facts of the case, we find that the point for decision is whether or not IPR service was received even after 10-9-2004 by M/s. DHPL in terms of agreement entered into in 2002. We find similar issue came up before this Tribunal for decision.
In the case of Modi-Mundipharma Pvt. Ltd. (supra) it was held that whether payment for such services is made in one lump sum or made in instalments or based on quantum of sale by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. It was held that the technical know- how was transferred in terms of the agreement and appellant manufacturing and selling product over a period using the technical know-how and making payment periodically will not affect the fact of one time Page 5 of 7 ST/2020/2011 transfer which is held to be not a taxable event as the same was prior to 10-9-2004. The Tribunal did not agree with the argument of Revenue that use of formula and the know-how will amount to continuous used service covered by the periodic payment.
6. In the case of Petronet LNG Ltd. v. CST, New Delhi (supra) the Tribunal held that regarding taxability of appellant in respect of supply of tangible goods the date of long term charter agreement will be relevant though the tangible goods were continued to be used even after the introduction of service tax liability on such service. The Tribunal held that the taxable event of supply of tangible goods for use has taken place prior to the introduction of tax on such service; and that though hire charges for the actual use were remitted subsequently and periodically, no service tax is leviable.
7. We find the facts and the legal analyses as made in the above two decisions are applicable to the present case. Here the agreement for grant of license or transfer/permission to use technology was effected before 10-9-2004. The fact that M/s. DHPL continued to manufacture and sell using such transferred technology even after the introduction of service tax on IPR cannot be considered as continuous supply of service. The rendering of service is effectively determined by the date of transfer/permission to use technology by M/s. Denso, Japan which was prior to the introduction of tax liability on such service.
8. We find the Id. Commissioner (Adjudication) Service Tax, Delhi in his order dated 28-2-2011, in Para 3.6.2, categorically examined the legal position and concluded that the allegation in the show cause notice that the service was provided on continuous basis is incorrect. Only payment of service was spread over a period of time. The service was performed as soon as the technology was transferred. We are in full agreement with the said findings of the Id. Commissioner (Adjudication).
8. On the second issue of applicability of service tax on know- how and technical information, technical assistance and training, the same is also addressed by series of judgments by this Page 6 of 7 ST/2020/2011 Tribunal. In the case of M/s. GE Medical Systems (India) Pvt. Ltd., this Tribunal following the precedent on the subject held as follows:
5. Heard both sides and perused the records. The issue to be decided is whether the royalty payments made by the appellant for receiving the technical know-how to their parent-company at USA, and consideration received from the domestic customers towards transfer of technical know-how are liable to service tax under the category of intellectual property service as defined under Section 65(55a) of the Finance Act, 1994. This Tribunal recently in the case of GE BE Pvt. Ltd. vs. CCE (supra) in a similar set of facts, had set aside the demand of service tax in relation to technical know-how.
9. Following the above said precedents, we hold that the impugned order is devoid of merit. Consequently, the same is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Operative part of this Order was pronounced in Open Court on conclusion of the hearing.) (D.M. MISRA) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) GB Page 7 of 7