Full Judgment
Per: Mr P.G. Chacko
1. In this application, the appellant seeks waiver of pre-deposit and stay of recovery in respect of service tax of Rs 46,02,944/- demanded by the Commissioner for the period January 1998 to March 2002 and also in respect of the penalties imposed by him under various provisions of the Finance Act, 1994.
2. After examining the records and hearing both sides, we find that this is a fit case for summary disposal of the appeal. Accordingly, after dispensing with pre-deposit, we proceed to deal with the appeal itself.
3. The appellant had collected technical fee from certain other companies as a consideration for technical know-how or assistance rendered to them under agreements entered into with them. There were three such agreements. One of these agreements was a Joint Venture Agreement, whereunder a Joint Venture Company (JVC) was constituted between M/s Kopran Ltd (appellant) and M/s Industrial Promotion Services (Uganda) 1995 Ltd. The JVC was called M/s Allied Pharmaceutical Industries Ltd. Under this agreement, the appellant was to be paid by the JVC a fee @2% of the total annual net sales turnover of the JVC under a separate technical assistance and management backup agreement. It appears, such technical assistance and management backup agreement was also concluded between the appellant and the JVC and, thereunder, the above fee was received by the appellant from the JVC for the technical assistance provided by the former to the latter. The fee so collected by the appellant from the JVC is a part of the taxable value on which the Commissioner, as revisional authority, has assessed and demanded service tax.
4. The second agreement, on the basis of which service tax has been demanded from the appellant, is the one between the appellant and M/s Global Pharma Co LLC, a company incorporated under the laws of the Emirate of Dubai and the Federal Laws of the United Arab Emirates. Under this agreement, the appellant received from the foreign company an amount of US$ 10 lakhs as consideration for transfer of technical know-how for operating a pharmaceutical manufacturing plant in Dubai. Moreover, the appellant also received separate consideration @0.5% of the Net Invoice Price of products sold within the territory of the Gulf Co-operation Council, from M/s Global Pharma. These amounts collected by the appellant from M/s Golbal Pharma have also been subjected to levy of service tax.
5. The third agreement considered by the lower authorities for levy of service tax from the assessee is what is called Agreement for Transfer of Know-how for Formulation., dated 18.9.2001. Under this agreement, the appellant transferred technical know-how to M/s Cadila Health Care Ltd for the manufacture of pharmaceutical formulations and collected monetary consideration in the sum of Rs 5 crores. This amount has also been subjected to levy of service tax.
6. The demand is under the Head Consulting Engineers Service, which was introduced as a taxable service under the Finance Act, 1994, prior to the period of dispute in this case. The original authority, upon a study of the above agreements held, in adjudication of a show-cause notice, that the appellant was not liable to pay service tax as demanded in the show-cause notice. In taking this view, the said authority observed that service tax could not be levied from a firm or company under the above head unless it was an engineering organization. The Commissioner, as revisional authority, issued a show-cause notice dated 26.11.2008 under Section 84 of the Finance Act., 1994, seeking to revise/set aside the decision of the lower authority. This proposal was contested by the assessee. The Commissioner ultimately confirmed the demand of service tax against the assessee and imposed on them penalties.
7. The learned Counsel for the appellant points out, at the outset, that one of the three agreements is part of the subject-matter of subsequent show-cause notice dated 18.10.2006, wherein service tax was demanded on the amount of Rs 5 crores collected by the appellant from M/s Cadila Health Care Ltd. It is submitted that the order passed by the adjudicating authority in relation to this show-cause notice was against the assessee and that their appeal against the order of adjudication is pending before this Tribunal. The learned SDR has accepted this fact and has also shown us a letter dated 31.7.2009 of the Superintendent of Service Tax, Raigad, wherein the Superintendent has stated that the demand of Rs 25 lakhs on the value of Rs 5 crores also appears in show-cause notice dated 18.10.2006 (subsequent show-cause notice) from which appeal No ST/158/08 is pending. Thus, it is clear that the taxable value of Rs 5 crores arising out of the agreement between the appellant and M/s Cadila Health Care Ltd is a part of the subject-matter of the subsequent show-cause notice and appeal No ST/158/08.
8. With regard to the demand of service tax arising out of the two other agreements, the learned Counsel submits, in the first instance, that consulting engineers service is alien to these transactions. It is submitted that any transfer of technical know-how is per se not covered within the ambit of consulting engineers service and the same is presently covered by Intellectual Property Rights, which was introduced as a taxable service only on 10.9.2004. Further, it is pointed out that, even if it is assumed that the appellant rendered a taxable service to the foreign companies, it is a case of export of service, which was exempt from payment of service tax under Notification No. 55/98-ST as amended by notification dated 6.10.09, inasmuch as the consideration for the service was collected in convertible foreign exchange. It is submitted that this contention was raised in the very reply to the show-cause notice but the same was not considered by the learned Commissioner.
9. The learned SDR submits that payment in convertible foreign exchange by the overseas recipient to the Indian service provider is not enough. It is submitted that the service should be shown to have been rendered abroad (outside India) so as to qualify as export of service and consequential exemption. In any case, we find that these aspects were not examined by the learned Commissioner. It goes without saying that the original authority, which dropped the demand, did not consider the above case of the assessee.
10. In the above circumstances, we set aside the impugned order and allow this appeal by way of remand to the original authority with a direction to it to pass fresh order of adjudication, restricting the subject-matter of dispute to the two agreements involving foreign companies. Needless to say that all the contentions raised by the assessee should be considered and a speaking order passed, after giving them a reasonable opportunity of being heard.