Customs, Excise and Gold Tribunal - Tamil Nadu
Cce vs Veleo Friction Material India Pvt. Ltd. on 15 February, 2005
Equivalent citations: 2005(185)ELT78(TRI-CHENNAI), 2006[3]S.T.R.588
ORDER P.G. Chacko, Member (J)
1. The Revenue is in appeal against an order passed by the Commissioner (Appeals) setting aside the demand of service tax on the respondents. The respondents namely M/s. Valeo Friction Materials India Pvt. Ltd. , are a joint venture company registered in India, consisting of M/s. Valeo France [a French Company] and M/s. Anand Pvt. Ltd. [an Indian Company]. This joint venture company, which was set up for manufacture, in India, of friction materials for clutch systems for motor vehicles, entered into a 'Technology Licence Agreement' with the French company on 11.2.1998. Under Article 2 of this agreement, the French company was to transfer the required technology to the respondents [joint venture company] on an exclusive, non-transferable, non-assignable basis for the purpose of manufacture and sale of the aforesaid products in India. Under Article 12 of the agreement, the respondents were to pay to the foreign company a royalty of 3.75% of the annual net sales value of products sold by the company in India during the seven-year period commencing on 1st January 2000, as consideration for the transfer of technology pursuant to Article 2 ibid. The technical know-how was received by the respondents in 1998 itself and the payment for the same was made by them in 2003. The show-cause notice issued by the department to the respondents demanded service tax on the amounts so paid by the respondents to the foreign company. This demand was confirmed by the original authority but set aside by the first appellate authority. Ld. Commissioner (Appeals) held that the foreign company did not render any taxable service to the respondents, apart from holding that Rule 6 of the Service Tax Rules 1994 was wrongly invoked for demanding such tax from the respondents.
2. Heard both sides. Ld. JDR has reiterated the grounds of the appeal, after referring to Article 5 and Article 6 of the Technology Licence Agreement. Ld. Counsel for the respondents, relying on the Tribunal's decision in Navinon Ltd. Vs CCE - 2004 (172) ELT 400 (Tri. mumbai) = (2004-TIOL-710-CESTAT-MUM), has contended that transfer of technical know-how was not a taxable service under the Finance Act 1994. Referring to the show-cause notice, ld. Counsel submits that the notice had not taken aid from Article 5 or Article 6 of the agreement for demanding service tax. According to ld. Advocate, the ground raised in the appeal to justify the decision of the original authority is beyond the scope of the show-cause notice.
3. After giving careful consideration to the submissions, I find that the demand raised by the department is on the corpus of the amount paid by the respondents to the foreign company as consideration for transfer of technology by the latter to the former in terms of Articles 2 and 12 of the agreement. These provisions of the agreement did not refer to any service. The show-cause notice, obviously, treated the transfer of technology as a service and brought it within the ambit of "consultancy, advice or technical assistance" within the meaning of these terms occurring in Clause 18 of Section 65 of the Finance Act, 1994. Neither Article 2 nor Article 12 made mention of consultancy, advice or technical assistance. They had only provided for transfer of technical know-how from the foreign company to the joint venture company and for payment of consideration for the same by the latter to the former. In the present appeal, the Revenue's endeavour appears to be to press into service Articles 5 & 6 of the agreement, none of which was invoked in the show-cause notice to demand service tax from the respondents. Article 5 provided that the foreign company shall provide technical assistance to the respondents by sending industrialization specialists to India to assist the respondents to the extent of 150 men working days. The cost of such assistance was to be met by the foreign company. In the event of relaxation of the limit of 150 men working days of technical assistance, the respondents shall incur the cost of such extended assistance given by the foreign company. The Revenue has no case that any tax was leviable on technical assistance given by the foreign company to the respondents for which no payment was liable to be made by the respondents under Article 5, nor is it the Revenue's case that the limit of 150 men working days under Article 5 was extended at the cost of the respondents. The situation under Article 6 is still worse for the Revenue inasmuch as that Article did not provide for any technical assistance, consultancy or advice. That Article only provided for the respondents' engineers being trained abroad by the foreign company. Thus, even if it is assumed that the Revenue can legitimately invoke any provision of the above agreement for sustaining the demand of service tax in question, they have not shown that, on the facts of this case, Article 5 or Article 6 provide for technical assistance of the kind taxable under Finance Act, 1994. The fact remains that the basis in the show-cause notice for demanding service tax from the respondents was the transfer of technology by the foreign company to the respondents and payment of royalty by the latter as consideration for the transfer. This basis has apparently been given a go-by in the present appeal, herein a new basis founded on Articles 5 and 6 of the agreement has been made out in support of demand of service tax on the royalty paid by the respondents to the foreign company. This cannot be countenanced for the reasons already noted. The decision of the Commissioner (Appeals) has to be sustained.
Accordingly this appeal is dismissed.