Customs, Excise and Gold Tribunal - Bangalore
Coen Company vs The Commissioner Of Central Excise ... on 28 February, 2006
ORDER S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Appeal No. 136/05 dated 14.6.2005 confirming demands of Service Tax on the appellant. The order in Original proceeded to confirm Service Tax under the category of "Consulting Engineer" services. The appellant is a foreign based company in California, USA. They had entered into a Contract/Letter of Intent dated 11.7.1997 for design, detailed engineering and preparation of drawings/specifications for Hot Water Generation System of M/s. JPOCL's Air Separation Plant, Development of Process and designing of Complete Engineering System, including layout, General Agreement of equipment, piping and instrumentation diagram, preparation of specifications equipment and piping plus instrumentation, bill of material including specification, piping schematics process description, start-up, testing and commissioning procedures to be installed at M/s. JPOCL. They had not registered themselves under the Service Tax, hence after due investigation, proceedings were initiated for recovery of Service Tax under the category of "Consulting Engineer" as defined in Section 65 of the Act.
2. The appellant's contention was that they have not contravened with any provisions of the act. Their contention was that they were not covered under the act and they had not carried out any activity of "Consulting Engineer" as defined under the Act. They had not posted any engineers with the JPOCL, they had merely supplied the drawings and specifications and that activity by itself would not bring them under the category of "Consulting Engineer". They pointed out that the show cause notice dated 31.7.2002 was issued to them through the Indian Embassy on 10.10.2002 and the same is without jurisdiction inasmuch as Rule 6 (1) of the Service Tax Rules has been deleted from 16.8.2002. The said Rule was not in existence, as such it is submitted that the show cause notice is totally invalid and without jurisdiction or force of law. They contend that they were non-resident and they were outside India. They did not have an office in India. The person receiving the taxable service in India is now made liable to pay Service Tax. They contend that even as on today there is no provision of law authorizing the imposition of Service Tax on a non-resident for the work done outside India. They contend that the definition of "Consulting Engineer" means any professionally qualified engineer or an engineering firm and Service Tax can be levied only when the service is rendered in the said capacity. It is contended that they are manufacturers of industrial burners, gas, oil, coal and waste fuel firing equipments for boilers, air heaters and burners for refinery furnaces, rotary kilns and reverberatory furnaces. The predominant activity carried out by them is manufacture of various parts. Hence, they cannot be treated as engineering firm rendering consultancy, advice or technical assistance in any manner to a client in the discipline of engineering. Hence, they are not covered under the term "Consulting Engineer", as defined in the Finance Act 1994. They rely on the judgment rendered by the Tribunal in the case of M/s. Navinon Ltd. v. CCE, Mumbai wherein it has been held that royalty paid under a technology/technical know-how agreement cannot be subjected to the levy of Service Tax under the heading "Consulting Engineer" as the supplier of the technology is not a consulting engineer who provides a service in the capacity of the engineering but a manufacturer but would not fall within the description of a "Consulting Engineer" for the levy of Service Tax. He also relied on the CBEC Circular No. 36/4/2001 CX dated 8.10.2001 which clarifies and reiterates that the services provided beyond the territorial water of India are not eligible to Service Tax. They also relied on the following rulings:
(i) Carborandum Co. v. CIT 1997 (108) ITR 335 (SC).
(ii) Addl. CIT v. New Consolidated Goldfields Ltd. .
4. In support of their contention that the service provider is located outside India, the provisions of Indian legislation cannot be enforced on them. They also contend that penalty is not liable in the present case and relied on the rulings of the Allahabad High Court rendered in the case of Coolade Beverages Ltd. and that of M/s. Flyingman Air Courier (P) Ltd. v. CCE, Jaipur .
5. The learned Advocate reiterated all the grounds referred to above and also relied on the judgments rendered by this bench in the case of CCE, Cochin v. M/s. Rubco Sales International and Ors. vide Final Order No. 1888 & 1889/2005 dated 11.11.2005 and CCE, Cochin v. M/s. Rubco (Hawai Chappal Unit) vide Final Order No.1899/2005 dated 14.11.2005.
6. The learned SDR reiterated the Departmental contentions.
7. On a careful consideration and perusal of the entire records, it is clear that the appellants have only supplied the technology pertaining to design, engineering 'and technical specifications of Hot Water Generation System. There is no direct service pertaining to consulting/ engineering services provided by them in terms of the definition appearing in the Finance Act under this category. The Tribunal in the case of M/s. Navinon Ltd. v. CCE (supra) has clearly held in para 2 and 3 in a similar circumstance that recipient of technical know-how from foreign company against payment of royalty, not being authorized representative of that company in India, could not be fastened with service tax liability. Para 2 - 3 are reproduced herein below.
2. From a perusal of the know-how agreement under which the alleged services were obtained, it is apparent that the agreement shows the payments to be made pursuant to a technical know-how transfer and also the ingredients of the definition of a consulting engineer as given below:
consulting engineer" means any professionally qualified or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client one or more disciplines of engineering For the consideration of know-how and technical assistance, the appellants were required to pay royalty of 8% for export and 5% for domestic sales of the net invoice value of the products manufactured and sold by the appellants in accordance with the know-how.
3. The Commissioner (Appeals) has failed to appreciate that service tax is levied on the services provided under Section 66 of the Act by a service provider. Rule 6 (1) of the Service Tax Rules, 1944 provides that the said tax is on the value of the taxable services received, which is to be paid to the credit of the Central government by the 25th of the month. The proviso to this rule prescribes that in case of a person, who is non-resident or is from outside India and who does not have any office in India, and if such a person is liable to pay service tax, the said tax shall be paid by such person or on his behalf by any other person authorized by him. In the present case, from the agreement of transfer of technology and know-how, it is apparent and if its services covered then the appellants herein are the recipient of such services, which are provided by M/s. Ciba Geigy Ltd., Switzerland or their authorized representatives in India. They were required to discharge that obligation and liability. The appellants cannot be fastened with the said tax liability since they are being authorized representative of M/s. Ciba Geigy Ltd., Switzerland, is not forthcoming from the records. Therefore, the Commissioner (Appeals) upholding the order dated 27.8.2003 asking the appellants to discharge the tax liability and imposing penalty on them needs to be set aside.
8. The Tribunal in the case of CCE, Cochin v. M/s. Rubco Sales International and Ors. (supra) have also applied the ratio of the above judgment and has dismissed the Revenue's appeal. The Revenue's appeal against M/s. Rubco (Hawai Chappal Unit) (supra) on the same issue has also been dismissed. The various contentions raised by the appellants pertaining to their company based in USA and the show cause notice issued after the amendment to the Rule 6 (1) of the Service Tax Act is well taken ground. In terms of the amendment Rule 2 (iv) introduced with effect from 16.8.2002, the recipient of the services in India is liable to pay service tax on the services provided by the non-resident company. Therefore, the show cause notice dated 31.7.2002 issued through the Indian Embassy on 10.10.2002 without jurisdiction inasmuch as Rule 6 (1) of the Service Tax Rules has been deleted from 16.8.2002. The show cause notice having been served on 10.10.2002 hence the same is not sustainable. The CBEC in its circular No. 36/4/2001CX dated 8.10.2001 has also further reiterated that the services provided beyond the territorial waters of India are not liable to service tax. In the light of the above citations and the submissions made, the impugned order is not sustainable and the same is set aside by allowing the appeal.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)