2010 (9) TMI 368 - AT - Service Tax

Interest and Penalty demand raised on foriegn company - Demand of service tax along with interest and imposed the penalty Rs. 100/- per day - Technical and engineering information provided under the agreement is know-how and not engineering consultancy as decided by the Commissioner - In Indian Farmers Fertilizer Coop. Ltd. Vs. CCE Bareilly (2006 -TMI - 1412 - CESTAT NEW DELHI) - Tribunal held that supply of know how as intellectual property was not taxable as consulting engineer s service - Only the amount received towards technical assistance in India would be taxable - The Supreme Court in Kerala State Electricity Board Vs. CCE Thiruvananthapuram (2007 -TMI - 2362 - Supreme Court of India) has held that where the liability to pay service tax is on the Indian company and the foreign company rendering the service does not have any office in India the tax was payable by the Indian company and not by the foreign company Thus impugned order are set aside - matter remanded back

Summary

Issues:
1. Taxability of services provided by a foreign company to an Indian company under a specific agreement.
2. Liability of service tax payment on the foreign company or the Indian company.
3. Jurisdiction of service tax payment concerning services provided outside India.
4. Interpretation of the nature of the transaction - sale of goods or rendering of services.
5. Justification for the levy of penalties.

Analysis:

Issue 1: Taxability of services provided by a foreign company
The appellant, a Danish company, entered into an agreement with an Indian company to supply technical know-how and services. The dispute arose regarding the taxability of these services under the category of consulting engineer services. The appellant argued that the activities were not taxable as no amount was received for technical assistance in India. The Tribunal cited precedents where the supply of know-how as intellectual property was not considered taxable as consulting engineer services. The nature of the transaction and the absence of payment for services in India were crucial in determining tax liability.

Issue 2: Liability of service tax payment
The Tribunal referred to the Supreme Court's decision in the case of Kerala State Electricity Board, emphasizing that the liability to pay service tax on services provided by a foreign company without an office in India rested with the service recipient. The terms of the agreement placed the responsibility of meeting the service tax liability on the Indian company, the service recipient. The Tribunal highlighted clauses in the contract that specified the obligations related to tax filings and penalties, clarifying that the liability for tax payment was on the appellant, not the foreign company.

Issue 3: Jurisdiction of service tax payment
The Tribunal discussed the applicability of service tax on services provided outside India, citing relevant judgments. It noted that service tax is leviable on services in India and that the provisions for taxability of imported services were introduced at a later date. The Tribunal emphasized that the services rendered outside the taxable territory were not subject to service tax, highlighting the importance of the geographical location of service provision in determining tax liability.

Issue 4: Interpretation of the nature of the transaction
The Tribunal analyzed whether the transaction involved the sale of goods or the rendering of services. It considered the preparation of the engineering package in Denmark and its delivery to India, questioning whether the consideration paid amounted to the sale of goods or the provision of services. The Tribunal assessed the elements of the commercial transaction to determine the nature of the transaction and the corresponding tax implications.

Issue 5: Justification for the levy of penalties
The Tribunal addressed the justification for the levy of penalties on the appellant. It reviewed the arguments presented by both sides regarding the imposition of penalties and the legal basis for such penalties. The Tribunal considered the circumstances under which penalties were imposed and evaluated the validity of the penalties in light of the legal provisions and the specifics of the case.

In conclusion, the Tribunal set aside the impugned order and remanded the matter to the Commissioner for fresh adjudication. The parties were to be given a fresh opportunity to present their case, considering the legal precedents and decisions that were not available during the relevant period. The Tribunal clarified that it did not delve into the merits of the case but focused on procedural aspects and legal interpretations.