2019 (2) TMI 85 – CESTAT CHENNAI – TMI – Extended period of limitation – Revenue neutrality – import of services – reverse charge – Scientific and Technical Consultancy service – appellants have entered into a master agreement with M/s. Europlex – Ireland for receiving R&D services. By such agreement, it was agreed that M/s. Europlex shall establish a separate technology department which shall provide R&D assistance to the appellant – Held that:- Undisputedly, M/s. Europlex is engaged in design, development and manufacture embedded control and communication products and software. They have taken up the responsibility of putting up a separate department for research and development of the projects and products of appellant and therefore it can be strongly inferred that they have the capacity for such research and development activities. The amount paid by the appellant to M/s. Europlex is also for the services of such assistance rendered in R&D activity. The definition of taxable servi
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fall under Scientific or Technical Consultancy service is interpretational too – apart from a bald allegation that appellant suppressed facts there is no positive act on the part of appellant brought out in show cause notice or impugned order as to suppression – appeal succeeds on limitation coupled with revenue neutrality.
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Appeal allowed – decided in favor of appellant. – ST/Misc./41579/2018 and ST/400/2011 – Final Order No. 42903/2018 – Dated:- 16-11-2018 – Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri R. Sai Prashanth, Advocate for the Appellant Shri A. Cletus, Addl. Commissioner (AR) for the Respondent ORDER Per Bench Brief facts are that the appellants are engaged in manufacture of Accesses Control System, Fire Control Systems and parts thereof. They are registered for providing erection, commissioning and installation services and were paying service tax on such services. Based on intelligence, officers initiated investiga
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ai Prashanth submitted that M/s. Europlex Technologies Limited, Ireland is a wholly owned subsidiary of the appellant. M/s. Europlex is engaged in the design, development and manufacture of embedded control and communication products and software. As per clause 2.3 of the agreement entered into between the appellant and M/s. Europlex, it is agreed that M/s. Europlex shall establish and maintain separate department which will carry on the requirement of research and development on projects and products of the appellant. In clause 3.3 of the agreement, it is agreed that if the development results in any copyrights, the same shall belong to the appellant alone and that M/s. Europlex will not have any proprietary right over such copyright. As per clause 4 of the master agreement, M/s. Europlex would charge the appellant for the expenses incurred by it and the appellant has the right to inspect and audit the accounts of M/s. Europlex. Thus, what was paid by the appellant was only reimbursem
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fy the requirements under the definition of scientific or technical consultancy service, the services has to be rendered by a scientific or technical institution or organization and they should have rendered the service in one or more disciplines of science or technology as an institution or scientist or technocrat. In the present case, M/s. Europlex is not a scientist or technocrat. It is a subsidiary company of the appellant herein and therefore has not rendered any service falling under this category. He placed reliance in the cases of Kopram Ltd. Vs. Commissioner of Central Excise, Raigad – 2011 (23) STR 627 as well as Yamaha Motors India Pvt. Ltd. Vs. CCE, Delhi – 2005 (186) ELT 161. The appellant is not a client of M/s. Europlex and thus no service tax is liable to be paid on the said transaction. It is argued by him that the appellant have been discharging service tax under consulting engineer service from 2008 and therefore the demand under scientific or technical consultancy s
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nsideration to the service provided, the amount cannot be treated as reimbursable expenses. The argument of the appellant that the transaction does not fall under the definition of Scientific or Technical Consultancy Service is also without any legal basis. M/s. Europlex being a body corporate is an organization. They have rendered assistance for research and development and therefore the services are in the nature provided in the definition of scientific or technical consultancy service. Merely because the intellectual property rights are retained by the appellant, the transaction would not fall outside the purview of scientific or technical consultancy service. Under section 66A, the appellants are liable to pay service tax on the amount paid to M/s. Europlex and therefore the demand confirmed is legal and proper. 4. Heard both sides. 5.1 For better appreciation, the definition of Scientific and Technical Consultancy service defined under section 65(92) is reproduced under:- Scientif
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ed our attention to page 73 of the appeal memorandum, which contains annexure – I which gives the details of the payment to be made by the appellant to M/s. Europlex. Annexure II deals with the work / activity in regard to R&D. Though in Annexure – I, the cost include wages and salaries, rent etc. in clause 4 of the agreement, the amount to be paid by appellant to M/s. Europlex is said to be a compensation for the R&D support and hosting charges. From the records before us, we are not satisfied that the amount paid are actual reimbursable expenses and therefore the decision of the Hon ble Supreme Court in the said case is not applicable to the facts of this case. 5.3 To appreciate the second contention of the appellant that the transaction does not fall within the definition of Scientific or Technical Consultancy services, it is necessary to extract the relevant portion of the agreement, which is as under:- WHEREAS SBTPL desires to obtain the services of ETL in the performance
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for funding the product / project. xxx xxx xxx xxx xxx xxx RIGHTS IN INFORMATION AND SOFTWARE If SBTPL is not a party to the PROJECT AGREEMEN, the respective AFFILIATE which is a party to the PROJECT AGREEMENT, shall, whenever created, exclusively own all right, title and interests in and to the DEVELOPMENT RESULTS regardless of the stage of development reached with (or the respective AFFILIATE) right to use and exploit them in any desired way including the right to copyright and patent. For the purposes of this AGREEMENT or any project agreements pursuant to this AGREEMENT, the words and expressions hereinafter defined in this clause shall have the respective meanings assigned to them: DEVELOPMENT RESULTS shall mean INTELLECTUAL PROPERTY RIGHTS and KNOW-HOW. xxx xxx xxx xxx xxx xxx SBTPL shall at its sole discretion, be entitled to use such inventions or protectable ideas / proposals for any technical use and to file for patents and other statutory protection in any country in its ow
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HARGES ETL agrees to charge SBTPL for support functions delivered according to the expenses incurred by R&D Division and part of manufacturing expenses incurred for R&D purposes based on the monthly accounts of ETL. It is estimated that the annual compensation for the R&D support and hosting charges will be Euros 1.71 million. SBTPL reserves the right to audit the records to verify the correctness of allocations to R&D expenses. In case there are any errors related to wrong billings, ETL shall promptly refund and repay to SBTPL the allocation paid in excess. 5.4 Thus, it is seen that the scope of the agreement is that M/s. Europlex, which has R&D capacities has to establish, maintain and host a separate technology department to carry out mission of assistance for research and development for projects / products of appellant and its affiliates. In 3.1 as well as 3.5 of the agreement, it is agreed between the parties that if any intellectual property right results out
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le service included not only advice, consultancy but also technical assistance rendered in any manner, either directly or indirectly, in disciplines of science or technology. It can be concluded that the assistance given by M/s. Europlex to the appellant for its research and development activity is nothing but technical assistance for improvement of its projects / products. 5.5 The argument of the ld. counsel that M/s. Europlex is a manufacturing unit and not a scientist or technocrat or any science or technical institution or organization so as to fall within the definition is also without any merit. M/s. Europlex being a registered company would fall within the category of organization and therefore the technical assistance rendered by M/s. Europlex to the appellant would fall within the definition of Scientific or Technical Consultancy service. The reliance placed by the ld. counsel in the case of Wanbury Ltd. Vs. Commissioner of Central Excise – 2016 (43) STR 226, in our view, is o
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e ld. counsel has also argued on the ground of limitation. It is submitted by the ld. counsel that the entire exercise is revenue neutral for the reason that if the service tax is paid under reverse charge, the appellant being service recipient, they would be eligible for credit being an input service. It is correct that during the impugned period there was no embargo in availing credit on service tax paid reverse charge mechanism. The Scientific or Technical Consultancy services being input services, the appellants would be eligible for credit. When appellants are eligible to take credit, there can be no intention to evade payment of tax. The show cause notice for the period October 2007 to April 2008 has been issued on 24.4.2010. Being a revenue neutral situation, as per the decisions of the Tribunal, the demand raised invoking extended period is not sustainable. The appellants had disclosed the amounts in the accounts and financial statement. The issue whether the transaction would
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