9911796707
TMI Blog2025 (2) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... demand of Rs.34 79,99,652/- (Rupees Thirty Four Crore, Seventy Nine Lakh, Ninety Nine Thousand, Six Hundred and Fifty Two only) under the provisions of Section 73(2) of the Finance Act, 1994, for the reasons discussed hereinabove; 14.2 I order to recover interest at applicable rates from M/s Hindustan Aeronautics Limited, Accessories Division, Faizabad Road, Indira Nagar, Lucknow-226016 under Section 75 of the Finance Act, 1994, on the amount confirmed in Para 14.1 above, for the reasons discussed hereinabove; 14.3 I also impose penalty of Rs. 10,22,050/- (Rupees Ten Lakh, Twenty Two Thousand and Fifty only) upon M/s Hindustan Aeronautics Limited, Accessories Division, Faizabad Road, Indira Nagar, Lucknow- 226016, under Section 76 of the Finance Act, 1994, for the reasons discussed hereinabove" 2. Appellant is a Government of India undertaking interalia engaged in providing taxable services under the category of Management, Maintenance or Repair Services, Appellant is also availing the facility of Cenvat Credit under Cenvat Credit Rules. Appellant imported technologies on payment of royalty, license fee etc. from foreign vendors. 3. During audit of records of the Appellant fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Tax payable @15% 1 15010101 License Fee (Other intangible assets License Fees) 886372703 132955905 2 15010201 Documentation Fee (Other intangible assets Documentation) 262306281 39345942 3 15010301 Computer software (Other intangible assets Computer software) 704152 105623 4 15010401 License Fee 29150814 4372622 5 15010601 Design & Development 30000000 4500000 6 19060002 License Fee-ALH 0 0 7 19060101 Documentation 161615 24242 8 19060154 Documentation 9136649 1370497 TOTAL 1217832214 182674831 GRAND TOTAL (2015-16 & 2016-17) 2428489576 358220149 5. After completion of the investigations, show cause notice SCN dated 17.04.2018 was issued to the Appellant asking them to show cause as to why- "(1). Service tax, amounting to Rs. 35,82,20,149/- (Rupees Thirty Five Crore Eighty Two Lacs Twenty Thousand One Hundred and Forty Nine Only) inclusive of various cesses should not be demanded and recovered from them in terms of Section 73 (1) of the Finance Act, 1994. (2). Interest at appropriate rate should not be demanded & recovered from them under Section 75 of the Finance Act, 1994. (3). Penalty should not be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentations and manuals and is not in respect of provisions of any service to the Appellant, accordingly the same could not have been covered by the definition of services under the Finance Act, 1994. ⮚ As per the Indian Accounting Standard (Ind AS) 38, these manuals are in nature of intangible assets which are accounted as such. The said assets are defined as identifiable non-maintainable assets without physical contact. ⮚ In terms of this accounting standard every year on amortized basis of the cost of acquisition of these assets is shown as expenses in the financial accounts of the Appellant. ⮚ The expense is taken from the trial balance which is not the actual expense incurred for acquisition of these assets in that financial year. The same are not in nature of consideration for any services received by them. They are book entries to balance cost of acquisition of the intangible assets in the previous years. ⮚ As no services have been received against these expenses under the category of Intellectual Property Services, the demand of service tax is bad in law. ⮚ In the following decisions it has been held that transfer of technology fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4 Indian Accounting Standard (Ind AS) 38 provides as follows:- 9. Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licences, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights. 10. Not all the items described in paragraph 9 meet the definition of an intangible asset, ie identifiability, control over a resource and existence of future economic benefits. If an item within the scope of this Standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognized as an expense when it is incurred. However, if the item is acquired in a business combination, it forms part of the goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng amount at the beginning and end of the period showing: Substituted vide Notification No. G.S.R. 365(E) dated 30th March, 2016 and, thereafter, substituted vide Notification No. G.S.R. 310(E) dated 28th March, 2018. Prior to substitution in 2016, the paragraph read as under: 116 The amount of consideration to be included in the gain or loss arising from the derecognition of an intangible asset is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115. Prior to substitution in 2018, the paragraph read as under: 116 The consideration receivable on disposal of an intangible asset is recognised initially at its fair value. If payment for the intangible asset is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with Ind AS 18 reflecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of income from such rendition be taxed. 16. The emphasis and thrust of each methodology is in alignment with the different purposes that they bear reference to - AS 7, in the context of the preparation of financials, addresses the "how much‟ of the transaction over the term of contract whereas Rule 3 of the Rules addresses the "when‟ in relation to the rendition of service for computing taxability under the Finance Act, 1994. 17. The basis of the addition by the respondent is clear from the SCN wherein he states that "further, on verification of the profit and loss account of the assessee for the financial years 2012-13, 2013-14 and 2014-15 along with Service Tax Payment shown in the ST3 returns, it appears that the assessee have not paid the appropriate Service Tax.‟ Despite the explanation offered by the petitioner to the effect that it is the Point of Taxation Rules that would govern the determination of time of rendition of service and consequent accrual of receipt and liability to tax thereof, and not the P and L accounts of the petitioner, the respondent persists in adopting the financials for the determination of service tax liability as well. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of which consideration has accrued as per the agreement with the customer. 24. Rule 3(a) and (b) provides for the point of taxation to be either the point of raising of invoice [Rule 3(a)] or in a case where the service provider has received the payment even prior to the time stipulated in the invoice, upon receipt of such payment [Rule 3(b)]. In the present case, no invoice is said to have been raised. However, the petitioner confirms that it has, in fact, received lump sum advances corresponding to several initial landmarks in the contract, even prior to the achievement of such landmarks. As per the provisions of Rule 3(b), the entire sum received thus becomes taxable upon receipt and according to Mr. Prabhakar, has been offered to tax. 25. Instead of such determination by application of the provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not been offered for service tax. The reporting of income in the P and L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous. 26. It is a well settled position that when a statutory provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits, it is his submission that the contract entered by the appellant-assessee is on behalf of the Republic of India for the supply and transfer of licence for production of fighter aircraft, engines, air borne equipments. The said agreement was entered on 28 December, 2000 accordingly, appellant-assessee paid the amounts to the foreign-based firm. He would take us through the agreement which was produced for perusal of the bench and submits that the findings do not indicate as to how the services can be construed as scientific or technical consultancy services. Learned Counsel would submit that there is no basis to hold that it would fall under the definition of the services "scientific and technical consultancy service" as provided under Section 65(60) of the Finance Act, 1994. He would submit that said definition would be applicable only in the case of consultation, advice or technical assistance provided by the scientist or a technocrat or science or technology institution. It is his submission that M/s. Rosobornexport is not a science or technology institution. In support of such a submission he produces a copy of the registration of said supplier with the authorities which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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