Custom, Excise & Service Tax Tribunal
M/S.Saint-Gobain Gyproc India Limited vs Cce, Rohtak on 21 January, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing/Decision:21.01.2014
Service Tax Misc. 894 of 2009 in
Appeal No.24/2009-CU(DB)
(Arising out of Order-in-Original No.33/Commr./SU/08/ST dated 01.10.2008 passed by the Commissioner of Central Excise, Rohtak (Haryana).
M/s.Saint-Gobain Gyproc India Limited Appellant
Vs.
CCE, Rohtak Respondent
For approval and signature:
Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical) 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 Their Lordships wish to see the fair copy of the Order?4
Whether Order is to be circulated to the Departmental authorities?
Appearance: Shri J.K. Mittal, Advocate for the appellant.
Ms. Ranjana Jha, Joint CDR for the respondent.
CORAM:Honble Shri Justice G. Raghuram, President
Honble Shri Rakesh Kumar, Member (Technical)
Final Order No.50670/2014 Dated:31.01.2014
Per Rakesh Kumar:
The appellant are manufacturers of Gypsum Board jointing compound, Bonding Adhesive, Gypsum Plasters falling under Chapter 68 and 25 of the Central Excise Tariff. In March, 1985, they entered into an agreement with M/s. BPB Industries Public Ltd., England, a company registered in UK for manufacture of Gypsum Board Jointing Compound, etc. in collaboration with them by using their technology and technical assistance. In terms of Article 8.1, the appellant were to pay a lump sum amount of #400000/- outside India to a bank as specified by M/s.BPB in three instalments - one third amount after the date of the agreement, next one third within 30 days of M/s.BPB certifying that all the written information contained in the 1st schedule to the agreement has been supplied to the appellant and the remaining one third instalment within 30 days of the commencement of the commercial production or 4 years from the date of the agreement, whichever is earlier. The amount #400000 period sterlings for the technical knowhow has been paid by the appellant to M/s.BPB. In terms of the Article 8.2 of the agreement, in addition to the amount of #400000/- for technical knowhow, the appellant were also required to pay to M/s.BPB an amount @ 3% of the annual sales in consideration for the technical services as specified in Schedule II to the agreement, provide by M/s.BPB to the appellant. The technical services were about technical advice and assistance with identification specification and preparation of linerboard (paper) Gypsum and other indigenous raw materials to be used by the appellant in India, expert advice and assistance during installation, erection and commissioning and modifications or additions to the existing equipment required to manufacture the products, expert advice and assistance in respect of manufacture of the products, including and problem solving, expert advice and assistance in respect of marketing of the products etc. The department was of the view that the appellant were required to pay service tax as service recipient under Rule 2(1) (d)(iv) of the Service Tax Rules, 1994 on the amount being paid at the rate 3% of the annual sales, to M/s.BPB, as according to the Department, this was import of services, which was taxable in India. The service tax was demanded by classifying the service being received in terms of the Article 8.2 of the agreement as intellectual property service. Accordingly, a show cause notice dated 22.5.2008 was issued to the appellant for demand of allegedly non-paid service tax amounting to Rs.63,22,985/- for the period from 10.09.2004 to 30.11.2007 along with interest thereon and also for imposition of penalty on the appellant under Section 76, 77 and 78 of the Finance Act, 1994. The show cause notice was adjudicated by the Commissioner vide order-in-original dated 1.10.2008 by which the above mentioned service tax demand was confirmed along with interest and besides this, while penalty of Rs.65,00,000/- was imposed on the appellant under Section 76 and 78 of the Finance Act, 1994 for non-payment of service tax and for suppressing the value of the taxable service from the department, a penalty of Rs.5,000/- was imposed under Section 77 of the Finance Act, 1994 for non-submission of the ST-3 returns. Against this order of the Commissioner, this appeal has been filed.
2. Heard both the sides.
3. Shri J.K. Mittal, Advocate, ld. Counsel for the appellant, pleaded that the show cause notice seeks recovery of service tax on the amount being paid by the appellant to M/s. BPB Private Limited Company, UK, England @ 3% of the annual sales turnover by treating this amount as royalty and the service tax is sought to be charged on this amount as intellectual property right service , that as is clear from the Article 8.2. of the appellants agreement with M/s. BPB Industries, England, the amount being paid by the appellant is for technical services, as specified in Annexure-II to the agreement, that the royalty amount for use of the technology developed by M/s.BPB had been paid by the Appellant to M/s.BPB in lumpsum in the year 1985 in terms of the provisions of Article 8.1 and no service tax can be charged on the same, that amount on which service tax is sought to be charged is not for IPR service, that in any case, the service tax demand for the period prior to 18.04.2006 would not survive, as the provisions under which the service tax could be charged by a service recipient in India on the services being received by him from an offshore service provider was introduced w.e.f. 18.04.2006 by inserting Section 66A and during the period prior to 18.04.2006 notwithstanding the provisions of Rule 2(1)(d)(iv) of the Service Tax Rules, service tax on the services could not be charged from the service recipient in India in respect of the taxable services received by him from an offshore service provider, that in this regard, he relies upon the judgement of the Honble Bombay High Court in the case of Indian National Shipowners Association Vs. Union of India reported 2009 (13) STR 235 (Bombay), that in any case the Commissioner of Central Excise, Rohtak had no jurisdiction to issue the show cause notice and confirm service tax demand against the appellant, as their registered office is located at Mumbai and they have plants at three locations Thane (Maharastra), Thiruvalli (Tamil Nadu) and Jind, (Haryana) and just because one of the plants of the appellant company is located in Haryana, the Commissioner of Central Excise & Service Tax, Rohtak could not issue the show cause notice to them and confirm service tax demand in respect of the some services alleged to have been received by the appellant company from offshore service provider, that in any case, when the amount on which the service tax is sought to be recovered as intellectual property services is not for the IPR services but is for some other services, no service tax can be demanded in respect of that amount and that in view of the above submissions, the impugned order is not sustainable.
4. Ms. Ranjana Jha, ld. Joint CDR, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the amount being paid by the appellant in terms of Article 8.2 of their agreement with M/s. BPB Industries, U.K. is also for use of the technology and has to be treated as royalty payment and accordingly the same would be taxable as consideration for IPR service, which become taxable w.e.f. 10.09.2004. She also pleaded that the Commissioner of Central Excise & Service Tax, Rohtak had jurisdiction to issue show cause notice and confirm the service tax demand against the appellant, as one of their plants is located at Jind within the jurisdiction of the Commissioner, Rohtak. She also pleaded that in respect of the period prior to 18.04.2006, notwithstanding the fact that section 66A was not there, service tax could be demanded from the appellant as service recipient in terms of the provisions of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. She, therefore, pleaded that there is no infirmity in the impugned order.
5. We have considered the submissions from both the sides and perused the records. The service tax is sought to be demanded on the amount being paid by the appellant to BPB, UK in terms of Article 8.2 of their agreement with them. While in terms of the Article 8.1 of the Agreement, the appellant were required to pay a lump sum amount of #400000 as consideration for technical knowhow provided, within a specified period and the same amount has already been paid, Article 8.2. provides for recurring annual payment @3% of the annual sales turnover for technical services provided by M/s. BPB to the appellant. The technical services being provided are those mentioned in Annexure-II to the agreement, which are expert advice and assistance with identification specification and preparation of linerboard (paper) gypsum and other indigenous raw materials to be used by the appellant in India, the expert advice and assistance during installation, erection and commissioning of the plant and also in the subsequent modifications or addition to the manufacturing plant, expert advice and assistance with the manufacture of the products and jointing compounds and joint filler including occasional supervision and problem solving, expert assistance in marketing of the final products etc. None of these services can be called intellectual property service. It is only the amount paid in terms of the Article 8.1 of the agreement, which can be said to be for intellectual property tax as this amount was for the use by the Appellant of the technical know how developed by M/s. BPB Industries, U.K. However, show cause notice seeks to charge service tax on the amount paid by the appellant to M/s.BPB in terms of the Article 8.2.of the agreement, which, as is clear from this clause, is for technical assistance as specified in Annexure-II to the agreement and not for royalty charge and as such, the same would not attract service tax under IPR service. The plea of the ld. Joint CDR that the amount being paid by the appellant to their technical collaboration, M/s. BPB, UK is the royalty charge for use of their technology is not acceptable at all. Moreover, we also find that the demand for the period prior to 18.4.2006 is not sustainable in view of the judgement of Honble Bombay High Court in the case of Indian National Shipowners Association (supra). We, therefore, hold that the impugned order is not sustainable. The same is set aside. The appeal is allowed.
( Justice G. Raghuram ) President (Rakesh Kumar ) Member (Technical) Ckp.
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