Imported technical know-how is not taxable as 'Intellectual Property Service' if it is not registered as an IPR in India, and composite contracts involving actual prototype execution do not qualify as 'Consulting Engineering Service' under the Finance Act, 1994.

Per M. Ajit Kumar,

This appeal is filed by RRB Energy Ltd. (appellant), against Order in Original No. 1/2015-C dated 23.04.2015 passed by the Commissioner, LTU, Chennai (impugned order).

Factual Matrix

2. The appellant manufactures, sells, installs, erects and commissions wind electric generators (WEGs) to generate power using wind energy. These WEGs are exempt from Central Excise duty. The appellant is registered with the Service Tax Department for discharging service tax on erection, commissioning, installation, maintenance and repair services, road transport of goods and consulting engineering.

During an audit of the appellant’s accounts by the Internal Audit Wing of the Service Tax Commissionerate in Chennai, it was discovered that between 2007-08 and 2011-12 the appellant spent foreign currency on technical assignment and consultancy fees. These payments were made to overseas service providers, M/s. Composite Technologies Centre (CTC) in the Netherlands and M/s. Windrad Engineering GmbH in Germany, both of which have no offices in India. The International Technology Transfer Agreement dated 31 May 2008/02 June 2008 between M/s. CTC and the appellant showed that CTC held the proprietary rights to the technical know-how for rotor blade manufacture. The appellant was granted exclusive rights to produce and sell the product and provide after-sales service in India. CTC supplied the appellant with designs, drawings and technical information for commercial exploitation retaining copyright on the documents and designs. CTC also provided skilled personnel services and technical advice at the appellant’s expense enabling appellant employees to learn how to use the technology and design. CTC offered design engineer, draftsman and supervisor support at specified rates with the appellant covering travel, car costs and other expenses. The services provided by M/s. CTC to the appellant hence appeared to fall under ‘Intellectual Property Services’. Windrad agreed to providing engineering consultancy for wind turbine development to the appellant. The appellant would pay the agreed amount to Windrad for these services. Given Windrad’s expertise in wind turbine development, it appeared that their technical assistance falls under the taxable category of ‘Consulting Engineers Service’. It appeared that the appellant has not paid Service Tax on these services under Section 66A of the Finance Act 1994 and Rule 2(1)(d)(iv) of the Service Tax Rules 1994 on reverse charge basis. They have not registered as a service receiver and have not filed ST-3 returns for the taxable service. After following due process, the Ld. Commissioner confirmed the demand of Rs 1,35,24,297/- for Intellectual Property Service and Rs 24,15,410/- for Consulting Engineering Service for the period from 2007-08 to 2011-12, along with interest and penalty. Hence this appeal.

3. The Ld. Advocates Ms. Shewetha Vasudevan and Shri Sheerabdhinath G appeared for the appellant and Ld. Authorized Representative Shri M. Selvakumar appeared for the respondent.

Submissions made by the appellant

3.1 Ms. Shewetha Vasudevan, Ld. Advocate for the appellant at the outset, presented the brief facts of the issue in a tabular form which is reproduced below: