2017 (7) TMI 1480 - AT - Service Tax

Levy of service tax - Consulting Engineer Services - reverse charge mechanism - HELD THAT - The payment made by the appellant company is for transfer of technology under intergovernmental agreement and not for receipt of any services in India in relation to business or commerce. We further find that under Section 65 (105)(g) taxable service under consulting engineers service means provided or to be provided to a client by consulting engineer in relation to advise consultancy or technical assistance in any manner in one or more disciplines of engineering. In the present facts and circumstances there is no relation of any Consulting Engineering Service with any client or appellant. In the facts and circumstances Service Tax is not attracted under the head Consulting Engineer Services on reverse charge basis - the impugned order is set aside - appeal allowed.

Summary

ISSUES:

Whether service tax under "Consulting Engineer Services" can be demanded under reverse charge mechanism on payments made for transfer of technology and technical assistance.Whether the extended period of limitation can be invoked for demanding service tax and penalties under Sections 73(1), 77(1)(a), and 78 of the Finance Act, 1994.Whether the payments for transfer of technology, technical documentation, training, and technical assistance constitute taxable "Consulting Engineer Services" or fall outside the scope of service tax.Whether the foreign entity providing technology transfer and technical assistance qualifies as a "Consulting Engineer" under Section 65(31) of the Finance Act.Whether the transfer of technology and related payments are for use in relation to "business or commerce" and hence taxable under the reverse charge mechanism.Whether penalties under Sections 77(1)(a) and 78 of the Finance Act are justified in the absence of suppression or mala fide conduct.

RULINGS / HOLDINGS:

The demand of service tax under "Consulting Engineer Services" on payments for transfer of technology and technical assistance under reverse charge is not sustainable as the payments are not for receipt of any services in relation to business or commerce.The extended period of limitation under the proviso to Section 73(1) cannot be invoked as the elements of "fraud, collusion, willful misstatement, suppression of facts or contravention of the provisions" are not established.The foreign entity providing the technology transfer and technical assistance does not qualify as a "Consulting Engineer" under Section 65(31), as it neither renders advice, consultancy nor technical assistance in any engineering discipline in the relevant sense.The payments made under the intergovernmental agreement for transfer of technology, including technical documentation and training, do not amount to taxable "Consulting Engineer Services" and are not liable to service tax under reverse charge.Penalties under Sections 77(1)(a) and 78 are not justified due to absence of any suppression or mala fide conduct, and no condition precedent for imposition of penalty exists.

RATIONALE:

The Court applied the definitions under the Finance Act, 1994, particularly Section 65(31) defining "Consulting Engineer" and Section 65(105)(g) defining "taxable service" under consulting engineer services.The Court relied on the principle that service tax under reverse charge for services received from outside India is leviable only if the services are used in relation to "business or commerce" as per Rule 3(iii)(c) of the Service Tax Rules, 2006.The Court referred to precedent where transfer of technology agreements were held not to fall under "Consulting Engineer Service" category, emphasizing the licensor-licensee relationship and the nature of the foreign entity as a state intermediary agency rather than a scientific or technical consultant.The Court noted the absence of any "fraud, collusion, willful misstatement, suppression of facts or contravention" necessary to invoke the extended limitation period under the proviso to Section 73(1).The Court distinguished the transfer of technology and related payments from services taxable under Intellectual Property Rights or consulting engineering, holding that the transfer of technology is not a service but a transfer of rights and documentation related to manufacture.The decision aligns with a coordinate bench ruling that found similar payments under intergovernmental agreements for defense manufacturing not taxable under consulting engineering services, emphasizing the official and confidential nature of such agreements and the status of the foreign entity.