2005 (4) TMI 3 - AT - Service Tax

Service Tax - Consulting engineer services - Royalty and Know how fees paid - Transfer of intellectual property - HELD THAT - It is being pointed out that know-how patent trade mark are intellectual property and trading in them is not rendering any service but is transfer of property. It is being pointed out that the very issues came up for consideration in Bajaj Auto Limited 2004 (10) TMI 11 - CESTAT (MUMBAI) and the Tribunal held that royalty paid towards right to use trade mark is not consultancy or advice and not subject to levy of service tax on engineering consultancy. Similarly it is being pointed out that the Indian Co. is not an agent in the absence of specific authorization and no liability for payment of tax rested on it according to the judgments. Yet another submission is that these judgments held that the amendment of August 2002 would have no retrospective effect. We find that the appellant Cos. are right in their contention that the issues raised in these appeals remain covered in favour of them by the aforesaid judgments. The Tribunal has held with regard to royalty payments that it is not consultancy. The Revenue s appeal has no merit as the issues remain covered in favour of the appellant-company s. Thus the appeals of M/s. Samsung Electronics Co. Ltd. Korea and M/s. Samsung India Electronics Ltd. are allowed after setting aside the impugned order and the appeal of Revenue is rejected.

Summary

Issues:
- Interpretation of technology and trade mark agreements for service tax liability.
- Application of service tax on royalty and know-how fee payments.
- Liability for service tax on the party rendering service.
- Effect of amendments in service tax laws on retrospective cases.

Analysis:
1. Interpretation of Technology and Trade Mark Agreements:
The case involved M/s. Samsung India Electronics Limited entering into agreements with its Korean parent company for technology transfer and trade mark usage. The central excise authorities considered these agreements as 'engineering consultancy' attracting service tax. However, the appellants argued that the agreements involved the transfer of intellectual property like know-how and trade marks, not the rendering of engineering consultancy services. The Tribunal examined the nature of the agreements and determined whether they fell under the category of consultancy services or intellectual property transfer.

2. Application of Service Tax on Royalty and Know-How Fee Payments:
The main contention revolved around whether the royalty and know-how fee payments made by M/s. Samsung India Electronics Limited were subject to service tax. The appellant companies argued that these payments were not for services provided but for the use of intellectual property, such as technology and trade marks. They relied on previous judgments to support their claim that royalty payments do not constitute consultancy services and should not be taxed as such.

3. Liability for Service Tax on the Party Rendering Service:
Another aspect of the case was the liability for service tax, with the appellants arguing that the service tax should be imposed on the party rendering the service, not the recipient. They contended that as the subsidiary was not an agent or authorized by the Korean company, it should not be liable to pay service tax. The Tribunal analyzed the legal principles governing service tax liability and determined the correct party responsible for the tax payment.

4. Effect of Amendments in Service Tax Laws on Retrospective Cases:
The case also addressed the impact of amendments in service tax laws, particularly those introduced in August 2002, on retrospective cases. The appellants argued that these amendments should not apply to their case as the demands related to a period before the amendments came into effect. The Tribunal considered the temporal application of the amendments and their relevance to the present case to determine the applicability of the updated laws.

In conclusion, the Tribunal found in favor of M/s. Samsung India Electronics Limited and its Korean parent company, allowing their appeals and rejecting the Revenue's appeal. The Tribunal held that the issues raised in the case were covered by previous judgments, which established that royalty payments for intellectual property usage do not constitute consultancy services subject to service tax. The decision highlighted the distinction between intellectual property transactions and consultancy services, providing clarity on the tax liability in such agreements.