Custom, Excise & Service Tax Tribunal
Nova Chemicals (International) S.A vs Cce, Kanpur on 6 June, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing : 6.6.2013
Date of Pronouncement :
For Approval & Signature :
Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
Service Tax Appeal No. 741 of 2007
[Arising out of Order-in-Appeal No.300/ST/APPL/KNP/2007 dated 29.8.2007 passed by the Commissioner (Appeals), Central Excise, Kanpur]
Nova Chemicals (International) S.A. Appellant
Vs.
CCE, Kanpur Respondent
Service Tax Appeal No. 619 of 2011 [Arising out of Order-in-Appeal No. 619/ST/APPL/KNP/2010 dated 31.12.2010 passed by the Commissioner (Appeals), Central Excise, Kanpur] Nova Chemicals (International) S.A. Appellant Vs. CCE, Kanpur Respondent Appearance:
Shri Kavin Gulati, Advocate assisted by - for the appellant Shri Shyel Trehan & Ms. Manjira Das Gupta, Advocates Shri Amresh Jain, D.R. - for the respondent Coram : Honble Mr. Justice G. Raghuram, President Honble Mr. Sahab Singh, Member (Technical) F. Order No. 56769-56770/2013 dated 28.6.2013 Per Sahab Singh :
These appeals are filed by M/s Nova Chemicals (Nova Chemical International) S.A. Switzerland (hereinafter referred to as appellants) against Order-in-Appeal No. 300/ST/APPL/KNP/2007 dated 29.8.2007 and 619/ST/APPL/KPP/2010 dated 31.12.2010 passed by Commissioner of Central Excise (Appeals), Kanpur.
2. Brief facts of the case are that on perusal of Balance Sheet of M/s Gas Authority of India Ltd., U.P. (in short GAIL) for the financial year 2000-2001 and 2001-2002 it was noticed that GAIL had incurred expenditure in foreign currency under the head Technical Consultancy & Engineering amounting to Rs.4,26,26,000 and Rs.8,67,44,000 during the year 2000-2001 and 2001-2002 respectively. On further enquiry, it was revealed that these expenses were incurred by them in connection with consultancy charges relating to engineering and were paid to foreign companies in foreign exchange acting as consulting engineer for GAIL who do not have office in India. Statement of Shri Sachin Jain, Senior officer of GAIL was recorded on 18.9.2006 in which he stated that GAIL has entered into an agreement with appellants and subject payment of Rs.5,84,61,381/- was made to the appellant as first instalment of subject license agreement. It was also stated by him that liability to service tax if any lies with the appellants with whom license agreement dated 10.9.2001 was entered into by GAIL. It was found that GAIL has paid total amount of Rs.6,78,69,495/- (including Rs.64,85,045/- deducted as TDS and Rs.29,23,069/- as cess) towards invoice dated 8.2.2002. Accordingly, a Show Cause Notice dated 16.11.2006 was issued demanding service tax of Rs.33,9393,475/- with interest and proposing penalties. The Show Cause Notice was adjudicated vide Order-in-Original No. 5/ADC/2007 dated 9.4.2007 confirming tax amount along with interest and imposing penalties under Section 75A, 76, 77 and 78 of that Act. Appellants filed an appeal before Commissioner (Appeals) who vide Order-in-Appeal dated 29.8.2007 rejected their appeal. Second Show Cause Notice was issued to the appellant on 12.3.2007 demanding service tax amounting to Rs.32,63,268/- along with interest and proposing penalties. This Show Cause Notice was in respect of the period 2001-2002. This Show Cause Notice was confirmed by the original authority vide Order No. 3/2007 dated 22.10.2007. Appellants preferred appeal before Commissioner (Appeals) who vide Order-in-Appeal No. 619/2010 dated 31.12.2010 rejected their appeal. Appellants have filed the present appeals before this Tribunal. Since issue is the same, these appals are being taken up together.
3. Ld. Advocate appearing for the appellant submits that transfer of patented technology is not classifiable under Consulting Engineer Service and more appropriately classifiable under Intellectual Property Right Service. He submits that as per agreement with GAIL, appellants are owners of patent right in relation to Sclairtech Linear Polythene Technology and said technology is given to GAIL under license. Reading of various provisions of agreement dated 15.2.93 and 10.9.2001 subject matter is transfer of technology, perusal of supplementary agreement would indicate appellants continue to hold patents and it transferred patented technology for proposed expansion to GAIL. He submits that there are series of judgments holding such transfer to technology would not fall under Consulting Engineer Service and consequently Order-in-Appeal deserves to be set aside.
4. The other argument put forth by the ld. Advocate is that appellants can be classified as provider of Consulting Engineers Service only if it is proved by the department appellant is a qualified engineer and an engineering firm. In defence reply to Show Cause Notice, appellants submitted that they are not engineering firm but a manufacturing firm. To qualify as consulting Engineering business of firm should be to provide consultancy in one or more field of engineering. He further submits that to come under ambit of Consulting Engineers service, it is necessary for Revenue to prove that services in question are provided by engineering firm who renders any advice, consultancy or technical assistance.
5. Ld. Advocate further points out that with effect from 10.9.2004 specific entry 65(55a) and Section 65(55b) has been created bringing transfer of technology either through patents or otherwise under service tax net under category of Intellectual Property Right Service and it is not permitted under law to charge tax in any other entry when a service is covered under specific service of IPR. Since IPR service was not in existence during the period of demand, Order-in-appeal is required to be quashed.
6. He further submits that both Show Cause Notices are time-barred as extended period of 5 years cannot be invoked in this case and consequently penalty under Section 78 cannot be imposed on them.
7. Ld. Advocate submitted the written submissions giving details of the argument along with list of case laws relied on by them on issue of classification of service as Consulting Engineering Service, time-bar and imposition of penalty.
8. The ld. Additional Commissioner (A.R.) appearing for the Revenue submits that the agreement in question is in respect of expansion of the plant of M/s GAIL and is an independent and all comprehensive agreement. The schedule B-2 of the agreement clearly indicates that the appellant as engineering firm has rendered consultancy and technical assistance to GAIL in different disciplines of engineering and the engineering consultancy does not involve any type of technology transfer which involves any patented process or IPR under any law for the time being in force. Since there is no transfer of right to use any IPR or any patented process there is no provision of any royality or running royality linked to IPR. The consideration received by the appellant is only for consultancy given by the service provider. As regards the issue of limitation, the ld. A.R. submits that the case was detected by the department after the audit of GAIL and it was only in 2006 the agreement between GAIL and the appellant was brought on record and since the invoices involved in the appeals are dated 8.2.2002 and 27.3.2002 and Show Cause Notices have been issued on 16.11.2006 and 12.3.2007 both are within the limit of extended period which is applicable in the present case as the appellant neither took the registration nor filed any returns to the department. He therefore submits that lower authority have rightly confirmed the demand against the appellant.
9. After hearing both sides, we find that Commissioner (Appeals) in the Order-in-Appeal 300 dated 29.8.2007 has held as under :-
As regard the classification of appropriate category of Service Tax for services provided by the Appellants in view of clauses of agreement, bill for first instalment raised by the Appellants, definitions contained in Act and clarification issued by CBEC, New Delhi vide its Circular No. B/43/5/97-TRU dated 2.7.1997. I find that the learned adjudicating authority has appropriately classified the services under the category of Consulting Engineering Services in view of findings which have been discussed in detailed in impugned order. Commissioner (Appeals) in Order-in-Appeal No. 615 dated 31.12.2010 has reproduced the finding of Order-in-Appeal 300 dated 29.8.2007.
10. Commissioner (Appeals) has not given any finding as to how the service is classifiable under consulting Engineering Service, particularly when appellant raised the issue before him that they are not engineering firm. We find that as per definition of Consulting Engineer under Section 65(13) :-
Consulting Engineer means any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.
11. There is no dispute that during the audit of the GAIL it was noticed that GAIL has incurred expenditure in foreign currency during the year 2000-2001 and 2001-2002. In the balance sheet the expenditure is shown under head Technical Consultancy and Engineering. We note that balance sheet is a document prepared under provisions of Companies Act. GAIL has received the service of Technical Consultancy and Engineering as per Balance Sheet, which means that appellants have provided the service of Technical Consultancy & Engineering. However as per definition of Consulting Engineer under Section 65(13) of the Act, these services when provided by an engineering firm or professional engineer only become taxable. We find that Commissioner (Appeals) has not given any finding on the fact that appellants are an engineering firm and he has just upheld the finding of original authority without analysing the definition under the Act. We therefore find that matter needs to be remanded back to Commissioner (Appeals) on this ground.
12. As regards contention of the appellant that their activity is more appropriately falls under Intellectual Property Right Service which came into effect on 10.9.2004. We note the period of dispute in the present appeal is 2000-2001 and 2001-2002 and IPR service was not in existence at that time. Moreover there is no provision in Finance Act, 1994 stating that when a new service is created, the same was not covered under other taxable service prior to creation of new entry. On the other hand we note that a service may fall under two taxable services and to classify it more appropriately Section 65A of the Finance Act is required to be invoked. In view of the fact that during the disputed period IPR service was not in existence, we do not accept the contention of the appellant.
13. As regards issue of invoking extended period of limitation and imposition of penalty, since we are remanding the matter to Commissioner (Appeals) these issues can be addressed by him while deciding the case in remand proceedings.
14. In view of the above we remand the matter back to Commissioner (Appeals) to decide the matter afresh after giving an opportunity of hearing to the appellant.
15. Orders in appeal are set aside and appeals are disposed of by way of remand.
(Pronounced on.............................) (Justice G. Raghuram) President (Sahab Singh) Member (Technical) RM 2