M.V.RAVINDRAN,MEMBER (J) -
(1.)THESE two appeals are disposed of by a common order as they are filed against the very same order -in -original number 02/ST/2009 dated 27 -2 -2009, Appeal No. ST/135/2009 is filed by the assessee while Appeal No. ST/135/2009 is filed by Revenue. The relevant facts that arise for consideration are on the basis of information that Hindustan Aeronautics Ltd. (hereinafter referred to as HAL) had received taxable service from M/s. Rosoboronexport of Russia, foreign -based firm who were not having any office in India and hence were liable to pay Service Tax under reverse charge mechanism as a service recipient. Further enquiry was conducted and it was noticed that during the period October 2006 to October 2007 the appellant assessee had paid an amount to the foreign based firm which would get classified as services on which liability to pay tax arises. Coming to such a conclusion, show cause notice dated 11 March 2008 was issued directing the appellant assessee to show cause as to why Service Tax liability be not demanded under the category of intellectual property services as defined under Section 65(55b) as the services rendered by the foreign firm was for rendering technical assistance from an individual. Appellant assessee contested at the show cause notice on merits as also on the limitation. The adjudicating authority granted an opportunity of personal hearing which was availed. Before the adjudicating authority issued an order, there was a change in the authority. The Revenue authorities issued addendum to show cause notice dated October 2008. Appellant contested the said addendum. The adjudicating authority after considering the submissions made during the personal hearing, confirmed the demands raised with interest within the limitation period under the category of 'Scientific and Technical Consultancy Service' and dropped the demands beyond the limitation period. Adjudicating authority did not impose any penalty. The assessee is aggrieved by the demand of the Service Tax liability and interest thereof while Revenue is aggrieved by the adjudicating authority has dropped the demands which are beyond the limitation period.
Heard both sides and perused the records.
(2.)LEARNED Chartered Accountant appearing on behalf of the appellant assessee takes us through the entire case records. It is his submission that addendum issued by the Revenue is incorrect inasmuch as that the said addendum was issued after considering the written submissions made by the appellant assessee. It is his submission that Revenue is trying to improve upon that case after considering the defence raised by the assessee. On 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. Rosoboronexport 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 indicates that M/s. Rosoboronexport is registered as joint -stock company. He would rely upon the ratio of the decision of the Tribunal in the case of Kopran Ltd. - : 2011 (23) S.T.R. 627 (Tri. -Mum.), for the proposition that an amount paid for transfer of technical know -how for manufacture will not be covered under scientific or technical consultancy services.
(3.)LEARNED departmental representative on the other hand, would rely upon the very same agreement. It is his submission that by virtue of the said agreement technical assistance was provided by the foreign -based company to the appellant -assessee for manufacturing of fighter aircraft. It is his submission that the scope of the agreement is very clear inasmuch as that the agreement provides for visit of technical personnel to the appellant's manufacturing facility and help in creating the facility for manufacturing as per the agreement. It is his submission that the adjudicating authority has correctly come to a conclusion that the agreement provides for transfer of licence which includes formula, process, design, data and other relevant particulars. It is his submission that the adjudicating authority has incorrectly dropped the proceedings of the demands which are beyond the period of limitation as the appellant assessee did not produce the agreement before the authority to come to a conclusion and hence Revenue's appeal be allowed and the demands be confirmed for the entire period.
We have considered the submissions made at length by both sides and perused the records.
5.1 We find that the issue involved is regarding the discharge of Service Tax liability on the reverse charge mechanism for the services rendered by order "Rosoboronexport" in pursuance of an agreement entered for licence technical documentation for production of fighter aircraft. Revenue authorities have classified the said services rendered under the category of "scientific and technical consultancy services". The adjudicating authority has considered the agreement between appellant assessee and the foreign -based company.
5.2 In order to appreciate the correct position we need to consider the agreement entered by the appellant assessee who is a government of India organization engaged in the manufacturing of defence -related equipments. On perusal of the agreement, we find that the said agreement is for transfer of licence technical documentation for the manufacture of fighter aircraft in appellant assessee's facility. As the agreement being confidential and secret, we are not reproducing any of the articles in this order. Suffice to say that on perusal of said agreement we find that the agreement is for transfer of technology for the manufacturing of fighter aircrafts, for the purposes of which experts from the foreign company are required to visit and help the appellant assessee. The appellant assessee by the same agreement had agreed to pay consideration to the foreign based company. On backdrop of such a factual matrix it is to be examined whether the services received by the appellant would be falling under the definition of scientific and technical consultancy services.
5.3 We reproduce the definition of the "scientific and technical consultancy service."
Under Section 65 of the Finance Act, 1994
"Scientific or technical consultancy" means any advice, consultancy or scientific or technical assistance rendered in any manner, either directly or indirectly, by a scientist or a technocrat or any science or technology institution or organization, [to any person], in one or more disciplines of science or technology;"
It can be seen from the above reproduced definition, in order to tax the services, it has to be any advice, consultancy or scientific or technical assistance, to be rendered by the scientist or a technocrat. This is the first part of the definition. It is undisputed that the foreign based company "Rosoboronexport" is not a scientist or a technocrat.
5.4 The 2nd part of the definition indicates that advice, consultancy, or scientific or technical assistance has to be rendered by any science or technology institution or organization. On perusal of the status of "Rosoboronexport" we find that the said status indicates the foreign -based company as a joint -stock company, part of the Russian technologies state Corporation which is responsible for import/export of the full range of defence and Dual use end products, technologies and services. It is also noted that the said "Rosoboronexport" only has the right to supply the world market with a full range of arms and military equipments manufactured by the Russian defence industrial complex and approval; the said foreign company is one of the major operators in the world market for arms and military equipments. It is also indicated that the official status of "Rosbornexport" is an exclusive state intermediary agency and provides guaranteed state support of all export import operations. The said status of the "Rosoboronexport" indicates that it is neither science or technology institution or organization. In our considered view, the definition of "scientific and technical consultancy services" may not be applicable in the facts and circumstances of this case. Revenue has not brought on record any evidence to contradict the submissions of the appellant assessee. In the absence of any contrary evidence we have to hold that "Rosoboronexport" is not a science or technology institution or organization which gives any advise, consultancy or technical assistance in one or more discipline of science or technology. Our view is fortified by the judgment and order of the Tribunal in the case of Kopran Limited (supra). The relevant paragraphs are reproduced.
5. After giving careful consideration to the submissions, we have found valid points in the submissions of the counsel. The issue debated before us revolves around the definition of "scientific or technical consultancy" under Section 65 of the Finance Act, 1994. This definition reads thus: -
"'Scientific or technical consultancy' means any advice, consultancy or scientific or technical assistance rendered in any manner, either directly or indirectly, by a scientist or a technocrat or any Science or technology institution or organization, to a client, in one or more disciplines of science or technology."
As rightly pointed out by the learned counsel, three ingredients should be established to bring a service within the ambit of "scientific or technical consultancy" and these are -
(a) advice, consultancy or scientific or technical assistance should be rendered in any manner to a client; (b) it should be rendered by a scientist or technocrat or any science or technology institution or organization; and (c) it should be rendered in one or more disciplines of science or technology.
The nature of advice/consultancy/technical assistance was illustrated in M.F. (D.R.) Letter dated 9 -7 -2001 ibid thus:
"Such consultation may be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology etc."
We have got to examine the facts of this case in this backdrop. The terms of the relevant agreements indicate that these agreements were intended primarily to cover the following transactions, viz., transfer of brand names/trade marks to Cadila against payment of Rs. 70 crores, transfer of know -how for manufacture of bulk drug against payment of Rs. 20 crores and transfer of technical know -how to make tablets (formulations) against payment of Rs. 5 crores. None of these transactions can be conceptually reduced to mere advice, consultancy or scientific/technical assistance. On the other hand, they involve permanent transfer of intellectual property in one form or another and are presently covered by "intellectual property service". The ld. JCDRs "essential character test" is not applicable as the service is classifiable only under one sub -clause of clause (105) of Section 65 of the Act, which is sub -clause (zzr). Each agreement covered the transfer of an intellectual property and, therefore, a combination of the agreements (which was envisaged by JCDR as "package deal") would not make any difference. This rules out the applicability of Andhra Petrochemicals (supra). Moreover, the appellant -company cannot be said to be a science or technology institution or organization. Even medical colleges, hospitals or diagnostic/pathological laboratories have not been recognized by the department as science or technology institutions or organizations vide M.F. (D.R.) Letter dated 9 -7 -2001 ibid. In the show cause notice itself, the appellant -company was held out to be manufacturer of excisable goods only. It was not even alleged that it was a science or technology institution or organization. Even assuming that M/s. Kopran Research Laboratories Ltd. are a science or technology organization wholly owned by the appellant -company and that their R&D activities are financially supported by the appellant -company, we are not inclined to deem the latter to be a science or technology institution or organization. The two companies are distinct legal entities and, therefore, the functional character of one cannot be claimed by, nor infused into, the other. The submissions made in this context by the learned JCDR seemed to suggest that the doctrine of lifting of corporate veil was being invoked. In our view, this doctrine is not applicable to the facts of this case. As rightly submitted by the learned counsel, the Revenue has not alleged and established that the appellant -company provided advice, consultancy or scientific or technical assistance to Cadila in any specific discipline of science or technology. In the result, the argument of the counsel that the service rendered by the appellant -company to Cadila under the relevant agreements cannot constitute "scientific or technical consultancy" as defined under Section 65 of the Finance Act, 1994 merits acceptance. This argument also stands fortified by the view taken in Matrix Laboratories case wherein it was held that "scientific or technical consultancy" was not involved in sale of entire technology for a consideration."
5.5 This above view of Tribunal was followed by this Bench in the case of Universal Pharmacy, Final Order No. A/204 -205/2015, dated 23 -1 -2015, wherein on similar set of facts the bench held as under: -
"7. We find that for services to get covered under the said definition, there has to be a scientific or technical institution or organization and they should have rendered the services in one or more disciplines of science or technology as an institution; or scientists or technocrats. It is on record that the appellants herein are manufacturer of pharmaceutical goods and had their own set up, which they have sold to Universal Medicaments Pvt. Ltd. On this factual matrix, we find that the judgment of the Tribunal in the case of Modi Mundipharma Pvt. Ltd. (supra) squarely covers the issue in favour of the appellants. We reproduce the paragraph 6: -
"6. We have carefully considered the submissions from both sides. We also perused the agreement and the show cause notice. In the show cause notice it is alleged that the appellant was granted exclusive right to manufacture, use and sell within the territory, the preparation utilizing the know -how and scientific and technical information and the teachings of the patents on payment of royalty. It is also alleged in the show cause notice that the appellant was receiving know -how during the disputed period. However, from the agreement it is noticed that there is no evidence of continuous providing of information, know -how in relation to the manufacture. Further, it is not disputed that the appellant was manufacturing and selling products in the brand names, Pyricontin, Diacontin, Fecontin, Metocontin, Morcontin, Nitrocontin, and Unicontin which are claimed to be registered brand names of the appellant company. In other words, they are not using the brand name of Mundipharma A.G. Switzerland. Receipt of know -how appears to be a one time affair. There is no evidence, that their know -how is supplemented by Mundipharma A.G. Switzerland. Therefore, we are in agreement with the submissions on behalf of the appellant that royalty payment in the form of deferred payment for know -how received in 1990. Whether payment for such services rendered is made in one lump -sum or made in installments or based on quantum of sales by the appellant on an annual basis is not relevant to consider as to when the services were actually rendered. From the available evidences on record, we accept the submission of the learned Sr. Advocate that the services were rendered in 1990 and for the said services payments were being made periodically as provided in the agreement".
5.6 Further, in yet another case R.M. Dhariwal (HUF) v. C.C.E., Pune -III - : 2013 -TIOL -1897 -CESTAT -MUM has laid down the same ratio that transfer of trade name and formulae transferred for a consideration cannot be services which would fall under "Scientific or Technical Consultancy Service".
5.7 The ratio as reproduced above will squarely apply in the facts of the case in hand; accordingly we hold the impugned order is unsustainable and liable to be set aside.
5.8 As we have disposed of the appeal of the assessee on merits, we are not recording any findings on other submissions made by both sides. In view of the impugned order being held by us as unsustainable on merits, we hold that Revenue's appeal also fails.
5.9 In the facts and circumstances of the case in hand, the impugned order is set aside and appeal filed by the assessee -appellant is allowed and the appeal filed by the Revenue is rejected.
(Operative part of the order pronounced on 9 -4 -2015)