The Chandigarh bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on consideration received for technical know-how transfer.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that consideration received towards the transfer of technical know- how cannot be held to be consideration for the services rendered as Consulting Engineer.
Table of Contents
Background
The appellants/assessee, M/s Max India Financial Services Pvt. Ltd. is in the business of manufacture and sale of antibiotics and owned a manufacturing facility at Toshana, Punjab. M/s Max G. B Pvt. Ltd. (MGBPL) was set up as a joint venture between the appellant and M/s Gist Brocades International B. V.
As per agreement, the manufacturing facility at Toshana was made available to M/s MGBPL. As part of the MOU the plant, machinery, tools, registration, licenses etc. were transferred to M/s MGBPL. The transfer of technical know-how was for a consideration (royalty @ 20 Million for 06 months) during the period 01.07.1997 to 30.06.2000.
The department treated the transfer of technical know-how as the service of a consulting engineer and to levy service tax on the same. A Show Cause Notice was issued.
The Original Authority dropped the entire demand holding that the appellants are not a “consulting engineer”. However, the Commissioner reviewed the order. On revision, the Commissioner confirmed the demand.
On an appeal filed by the appellants, Tribunal remanded the case back to the Original Authority for de novo proceedings.
Arguments
The assessee contended that in terms of the MOU, there was only a transfer of know-how and no consultation was involved. The appellant has only provided M/s MGBPL J.V only the right to use the technical know-how against the consideration received. The appellant is not a professionally qualified engineer and therefore, the transaction cannot be taxed under Section 65(13) of the Finance Act, 1994.
The assessee contended that if at all the transaction is considered taxable, the same can only be taxed under the Head “IPR Services” w.e.f. 10.09.2004. The entire transaction was a transfer of business as a going concern and as such, no service tax can be levied. The Order is barred by limitation as it was passed beyond the permissible period of two years. The demand is barred by limitation as extended periods cannot be invoked.
Conclusion – Technical Know-How Transfer
The tribunal held that during the course of the audit, it was observed that M/s MGBPL had paid royalty fee and non- competition fee to the appellants for the use of technical know-how developed by the noticee. On going through the MOU dated 30.06.1997 between the appellants and M/s MGBPL, it is clear that the transaction that has taken place is of sale and the consideration is mentioned under two Heads one being “Purchase Consideration on a slump price basis” and the second being “royalty for use of technical know-how” for the period 01.07.1997 to 30.06.2000.
The tribunal while allowing the appeal found that there is no mention of any Consultancy Service to be rendered by the appellants. It will be incorrect to levy service tax on the same.
FAQs
Is there any Service Tax On Consideration For Technical Know-How Transfer?
No. he Chandigarh bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on consideration received for technical know-how transfer.
Case Details
Case Title: M/s Max Financial Services Ltd. Versus Commissioner of C E & S T, Chandigarh I
Case No.: Service Tax Appeal No. 1637 of 2011
Date: 08.10.2024
Counsel For Appellant: Krati Singh
Counsel For Respondent: Harish Kapoor
