Judgment:
1. This Revenue appeal arises from OIA No. 155/2005-CE dated 29.07.2005. The Commissioner (Appeals), in the impugned order, by following the ratio of several judgments, has held that transfer of technologies does not come within the ambit of Consulting Engineer. The findings recorded by him at pg. 15 are reproduced herein below: I have gone through the records of the case and submissions made by the appellants in the appeal during the course of hearing. Regarding the allegation that the appellants have paid royalty fees to their holding company viz. Molex Inc., U.S.A. for use of technology provided by M/s. Molex Inc., I find that the amount paid was for transfer of technology and does not involve rendering of advice or consultancy. In the case of Navinon Limited v. Commissioner of Central Excise, Mumbai , the Hon'ble Tribunal (Mumbai) held that royalty payment for use of technology and know how is a share of profit reserved by owner for permitting another person to use his property and cannot be equated with any service attracting service tax. Therefore, I hold that royalty paid for supply of technical know how does not attract service tax.
Regarding management fees paid to M/s. Molex Far East South Management (P) Ltd., I find that there is no dispute about the taxability of the service. However, the appellants are disputing the quantum of the value of the service and excess demand of 8% instead of 5% from the period 1.3.2003 to 13.3.2003. Regarding the abatement claimed from the total payment made towards expenses incurred, the original authority concurred with the view of the appellants that the expenses incurred are abatable, but rejected their claim on the ground that the appellants have not produced any evidence about the quantum of abatements to be permitted from the total amount paid. I find that the appellants even at the appeal stage have not produced any evidence about the quantum of deduction claimed. As per Section 67 of the Finance Act, the gross amount charged by the service provider for such service rendered by him is taxable. The words "gross amount" will generally mean the fees charged by the Management Consultant. The gross amount may sometime include the cost of brochure, or some special item made, or amounts paid to some specialists hired for rendering the service. No deduction can be given towards such expenses. However, if any amount of pocket expenses, such as hotel bills, air tickets, etc. are separately reimbursed by the client then deduction towards such, expenses can be given, provided documentary proof to that effect is produced. I find that the appellants are only generalizing the whole issue without providing the specific details of the deductions they are seeking. I am of the view that without the documentary evidence and the nature of expenditure claimed on deduction from the gross amount, no deduction can be permitted. Therefore, the order of the lower authority on this count does not call for any interference.
Regarding the claim of the appellants that service tax had been enhanced only from 14.5.2003 and that the rate of service tax applicable from 1.3.2003 to 13.5.2003 is only 5%, I find that the rate of service tax applicable from 1.3.2003 to 13.5.2003 is only 5%, so long as service is rendered prior to 13.5.2003 and billing is made during the said period. This is also in line with CBEC's clarification vide Circular No. 56/5/2003 CX (Service Tax) dated 25.4.2003. However, it is seen that the appellants have failed to furnish the details either before the original authority or before the appellate authority. In the absence of the documents evidencing rendering of service and billing for the same prior to 13.5.2005, no relief can be given to the appellants.
Regarding equivalent penalty imposed under Section 78 of the Finance Act, I find that the appellants company is a multinational company with professionalised management. Still, they failed to examine the taxability of the Management consultancy service received by them.
Therefore, I am of the view that penalty imposed under Section 78 is justified. I do not intend to interfere with other penalties.
Accordingly, I pass the following order: 1. I set aside the demand for Rs. 13,21,240/- in respect of royalty fees for supply of technical know how.
2. I uphold the demand for Rs. 8,32,391/- in respect of Management Consultancy fees.
3. I uphold the interest demand under Section 75 of the Finance Acton Rs. 8,32,391/-.
7. The penalty under Section 78 is reduced from Rs. 21,53,631/- to Rs. 8,32,391/-.
2. We have heard both sides in the matter. The issue pertaining to receipt of Royalty for technical know how from foreign collaborator has been held to be not coming within the category of Consulting Engineer.
The Tribunal, in the case of BST Ltd. v. CCE, Cochin 2006 (4) STR 40 (Tri.-Bang.), has followed the judgment of 5 rulings which are in assessees' favour. The finding recorded in paras 4 to 6 of BST Ltd. is noted herein below.
4. The learned Advocate urged that this issue has already been covered by large number of decisions of the Tribunals including this Tribunal. She relied on the following decisions of the Tribunal wherein it has been held that the technical know-how given by the foreign collaborator would not amount to the services of the 'consulting engineer.' Hence, it was urged that the demands and penalties are liable to be set aside.
II. CCE, Chennai-III v. Veleo Friction Material India Pvt. Ltd. IV. Kerala State Electricity Board v. CCE, Thiruvananthapuram Moreover, it was pointed out that Rule 6(1) of the Service Tax Rules has been amended w.e.f. 28-2-1999, according to which only an authorised agent of the foreign collaborator will be liable to pay the service tax. In the present case, she pointed out that the appellant is not at all an authorised agent and therefore, they are not liable for payment of tax under the provisions of Rule 6(1).
5. The learned JDR invited our attention to the Technical Assistance Agreement entered by the appellants with the foreign collaborators and said that as per Article 8.06 of the agreement, the appellant is required to bear all the tax liability in India. Therefore, the lower authorities confirmed the demand.
6. We have gone through the records of the case carefully. The main issue to be decided is whether the services rendered in India would amount to services of a 'consulting engineer' as per the Finance Act, 1994. The learned Advocate cited a large number of decisions and in all these cases, it has been categorically held that technical know-how received from the foreign collaborator would not amount to the services of 'consulting engineer.' Since the facts of the present case are similar to the case laws cited by the learned Advocate, we are of the view that these services would not be liable for payment of Service Tax, during the relevant period in the category of 'consulting engineers'. Since the basic issue stands settled, all other points raised are rendered irrelevant. Therefore, we do not want to go into the other legal aspects raised by the learned Advocate. In these circumstances, the demand of Service tax and imposition of penalties under the various sections of the Finance Act are not justified, hence, we set aside the impugned order. The stay and appeal are allowed with consequential relief.
3. After due hearing of both sides, we are of the considered opinion that the issue is fully settled in assessee's favour. There is no merit in this appeal and the same is rejected.