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TMI Blog2015 (1) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology and Patents relating to manufacture of Membrane Based Filtration, Separation and Treatment Systems for any/all Liquid-Liquid and/or Solid-Liquid Separation systems designed for Membrane Module Technology. During the audit of the records of the appellant it was noticed that they had paid royalty of Rs. 6,00,00,000/- on account of technical know-how charges to M/s. Rochem Switzerland under the technology transfer and License Agreement dt. 10 th April 2007 with Rochem A.G., Switzerland. The relevant clauses of the two agreements which have a bearing on the demand of service tax from the appellant are reproduced below: TECHNOLOGY TRANSFER AND LICENSE AGREEMENT Article 1. Definitions b. "Technology" means all the technical knowledge, know-how, standard calculations, data and information developed or otherwise generally used by ROCHEM AG pertaining to the assembly, use and sale of the said Products as stated in Article 3. d. "Intellectual Property Rights" means any rights under patents, utility models, designs, and trademarks and application thereof presently or hereafter acquired by Licensor and/or which Licensor has or may have the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-all applications & industries, for a period of 15 years from the date of signing of the Share Purchase Agreement. b. Vide clause 3.4 for RSS to continue to have exclusive right to the use of the Trademark/Tradename Rochem in all it5s variations and its Logo in the territories for all products to be manufactured by RSS which includes the right to use the said Tradename and Logo on all products, packaging, brochures, invoices, letterheads and other materials/literature for a period of 15 years from the date of this agreement. c. Vide clause 4.2 that they are aware of the fact that the RSS has been using the trade mark and logo "Rochem" and confirm that they do not have any reservations or objections for the use of the trade mark "Rochem" by the Company for a period of 15 years from the date of this agreement. The period of 15 years in the above said clauses is hereby amended to read "as long as this technology Transfer & License Agreement is in effect". Article 10. Payment In consideration of the Technology and the intellectual Property Rights furnished by ROCHEM AG tp RSS hereunder, RSS shall pay to ROCHEM AG as follows: &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that the RSS has been using the trade mark and logo "Rochem" and confirm that they do not have any reservations or objections for the use of the trade mark "Rochem" by the Company for a period of 15 years from the date of this agreement. 3. Show cause notice was issued demanding duty of Rs. 73,44,000/- on the royalty amount of Rs. 6,00,00,000/- paid during 2007-08 on the basis that the appellant had received Intellectual Property Right Service from M/s. Rochem A.G. Switzerland. The extended period was invoked under Section 73(1) for not declaring the fact of paying royalty for receiving Intellectual Property Right Service. The Commissioner upheld the charge of non-payment of service tax on Import of service on reverse charge mechanism under Section 73(1) invoking extended period alongwith interest. However, he refrained from imposing penalties under Sections 76, 77 & 78 of the Finance Act, 1994. 4. Heard both sides. 5. The Ld. counsel appearing on behalf of the appellant stated that the Intellectual Property Right Service is defined under Section 65(55b) as below: (55b) "intellectual property service" means (a) transferring, [t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax leviable thereon under section 66 of the said Act, as is equivalent to the amount of cess paid towards the import of technology under the provisions of section 3 of the Research and Development Cess Act, 1986 (32 of 1986) in relation to such intellectual property service." According to him, the appellants are entitled to exemption on the amount of Rs. 30,00,000/- paid by them as cess under the Cess Act. 5.4 Lastly, it was argued that the demand has been confirmed by invoking extended period. On the other hand the penalty under Sections 76, 77 and 78 has been waived on the basis of that the legality of service tax on reverse charge basis under Section 66A was under litigation and this is reasonable cause for invoking the provisions of Section 80 of the Finance Act for waiver of penalty under Sections 76, 77 and 78. 6. Ld. A.R. appearing for the Revenue reiterated the findings of the Commissioner. He drew our attention to clauses in the License Agreement and Share Purchase Agreement which indicate that the right to use trademark of Rochem AG Switzerland by the appellant was transferred and, therefore, the import of services under the agreement is leviable to Service Tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty Right. The Commissioner has failed to go into these aspects in detail and has clubbed the entire service as Intellectual Property Right service. 9. On the aspect of revenue neutrality, we agree with the reliance place on the Supreme Court judgments (supra). The Commissioner has simply stated that the tax must be paid even if the situation is of revenue neutrality. The judgments of the Supreme Court are very clear and there appears to be no reason whatsoever to disagree with these judgments. Especially when the appellants paid an amount of Rs. 3,74,68,704/- in cash from PLA also during the disputed period as against the service tax demand of Rs. 73,44,000/-. 10. The Commissioner has rejected the benefit of notification No. 17/2004 for the reason that the notification applies only to Section 66 and not to Section 66A in which the appellant is required to pay service tax on the import of services or reverse charge basis. The Commissioner's further reasoning is that the appellant is only a deemed provider of service under Section 66A (1) (b) and cannot be treated as one who provided the service. This reasoning is flawed Section 66A was introduced by Finance Act, 2006 w.e.f. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reasonable cause for non payment for invoking the provisions of Section 80. Accordingly, he waived penalties under Section 76, 77 & 78 of the Finance Act. However, while doing so he also expressed the view that the ingredients of Section 73 & 78 are not the same. We note that Section 73 (1) provides that where service tax is not paid by reason of fraud, collusion, willful misstatement, suppression of facts, or contravention of any of the provisions with intent to evade payment of duty, the extended time period of 5 years for issue of show cause notice can be invoked. Similarly, Section 78 provides that where the service tax has not been paid because of fraud, collusion, willful misstatement or suppression of facts or contravention of any of the provisions with intent to evade payment of duty, the liability of penalty will be equal to the amount of service tax not paid. We fail to understand how Commissioner has come to the conclusion that the ingredients of both the sections are different. If the reason for waiving penalty under Section 78 in terms of the provisions of Section 80 are that there was confusion about the scope of leviability on service receivers under reverse charge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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