2014 (2) TMI 385 - AT - Service Tax

Waiver of pre-deposit - Stay of recovery - Scientific or Technical Consultancy Services - Reverse charge mechanism - Held that - FTC appears to be a part of the appellant company and hence the amount spent by the appellant for R&D activities of FTC cannot form taxable value of the service in question said to have been paid to the holding company up to 01.04.2007 - Apparently, the appellant was entitled to receive payments from the foreign company for the services which the appellant was liable to provide to them under the MOU. Prima facie, on such amount, no service tax can be levied from the appellant under Section 66A - prima facie case has been made out by the appellant and hence there will be waiver of pre-deposit and stay of recovery till final disposal of the appeal as prayed for - Stay granted.

Issues involved:
- Waiver of pre-deposit and stay of recovery in respect of adjudged dues including service tax and education cesses under 'Scientific or Technical Consultancy' Services.
- Determination of taxable value of services provided by the appellant to their holding company and the applicability of service tax.
- Examination of the relationship between the appellant and Fosroc Technology Centre (FTC) in relation to Research and Development activities.
- Consideration of the Memorandum of Understanding (MOU) between the appellant and the foreign company for services provided post-April 2007.
- Comparison with a similar case where the Commissioner (Appeals) set aside a demand of service tax against the appellant.

Analysis:
1. The appellant sought waiver of pre-deposit and stay of recovery for the adjudged dues, including service tax and education cesses under 'Scientific or Technical Consultancy' Services. The demand was based on amounts expended by the appellant for Research and Development activities at FTC and receipts from their holding company. The demand was raised under the reverse charge mechanism under Section 66A of the Finance Act 1994, alleging control of FTC by the foreign company. The appellant contended that FTC was their own unit, and the money spent on R&D activities could not be considered payment to the foreign company pre-April 2007. The appellant also claimed that post-April 2007, payments received under the MOU with the foreign company were not taxable. Evidentiary materials, including a letter from the Department of Scientific and Industrial Research and a consolidated Trial Balance, indicated that FTC was part of the appellant company during the relevant period.

2. The appellant presented a copy of the MOU between them and the foreign company post-April 2007, showing entitlement to payments for services provided. The learned consultant referenced a similar case where the Commissioner (Appeals) set aside a service tax demand against the appellant, presenting copies of the relevant order-in-appeal. The Superintendent (AR) also reviewed this order-in-appeal.

3. After considering the arguments and evidence presented, the Tribunal found a prima facie case in favor of the appellant. It was determined that the amount spent by the appellant on R&D activities at FTC could not be considered taxable value pre-April 2007, and post-April 2007 payments under the MOU were not subject to service tax under Section 66A. Citing the similar case where the Commissioner (Appeals) ruled in favor of the appellant, the Tribunal granted the waiver of pre-deposit and stay of recovery until the final disposal of the appeal.

This detailed analysis of the judgment highlights the key issues addressed by the Tribunal and the reasoning behind their decision to grant the appellant's request for waiver and stay of recovery.

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