Rakesh Kumar, Technical Member - This is an application for waiver under section 35F of the Central Excise Act, 1944 of the requirement of pre-deposit of service tax and penalties confirmed by the impugned order and also for staying the recovery of these amounts. The Commissioner, by the impugned order has -

(a)confirmed the service tax demand amounting to Rs. 44,47,045 against the appellant under 1st proviso to section 73 of the Finance Act, 1994, along with interest at the applicable rate on this amount; and

(b)Imposed penalties of (i) Rs. 44,47,045 under section 78 (ii) Rs. 1,000 under section 77 and (iii) an amount equal to 2 per cent of the service tax payable per month till the date of payment of the outstanding service tax, under section 76 of the Finance Act, 1994;

On the ground that during the period from 10-9-2004 to 30-9-2006, the appellant received the taxable service of Intellectual Property rights as defined under section 65(105)(zzr), read with section 65(55a) of the Finance Act, 1994 from M/s. Mundipharma, Switzerland and therefore, under the provisions of section 66A of the Finance Act, 1994 and rule 2(1)(d)(iv) of the Service Tax Rules, 1994, they were liable to pay service tax on the royalty payments made by them to M/s. Mundipharma; but the same was not paid by them.

2. Heard both the sides.

2.1 Appearing for the appellants, Shri Rajesh Chhibber, advocate, pleaded that the appellants have a strong prima facie case and this is a case for total waiver of pre-deposit of service tax and penalties for maintenance of the appeal, in view of the following-

(i)The appellants have received technical know-how, in terms of ‘Collaboration Agreement’ with M/s. Mundipharma. Being a transaction in property, it cannot be subject to service tax.

(ii)There is no specific law covering know-how as an intellectual property. Therefore, it cannot be considered as "Intellectual property right" as defined in section 65(55a) of the Finance Act, 1994. This definition of "Intellectual property right" includes only those intellectual property rights which are protected by any Indian law. As per Board’s Circular No. 80/10/2004-ST, dated 17-9-2004, any intellectual property, not specifically covered by any law in India, is not covered under Service Tax provisions.

(iii)The agreement under which the technical know-how was received was entered into on 14-11-1990 and the appellants received the know-how soon after that date. Therefore this transaction cannot be taxed as IPR under section 65(55a) read with section 65(105)(zzr) an IPR was brought within service tax net with effect from 10-9-2004. Moreover when the transaction took place, the service receiver in India from an offshore service provider was not liable to pay the service tax.

(iv)The demand has not been computed correctly as cess amounting to Rs. 31,94,334 paid in term of Research & Development Cess Act, 1986 is liable to be adjusted with the service tax liability under Notification No. 17/2004-ST, dated 10-9-2004.

(v)The extended period has been wrongly invoked as there was no suppression of facts. A substantial portion of demand is time-barred.

2.2 Shri R.K. Verma, the learned Departmental Representative pleaded that this is not a case for waiver of pre-deposit of service tax and penalties, in view of the following :-

"(1)From the appellant’s agreement with M/s. Mundipharma, it is clear that there is no permanent transfer of know-how and the appellant have only acquired the right to use technical know-how developed by M/s. Mundipharma for which, a royalty is paid. Therefore, the service being received by the appellants from M/s. Mundipharma is IPR service liable to service tax.

(2)Longer limitation period of five years under proviso to section 73 has been rightly invoked.

(3)The Commissioner while confirming the demand of Rs. 44,47,045 had already adjusted the R&D cess paid by the appellant.

(4)The appellant was liable to pay service tax on the taxable service provided from offshore vide