CESTAT, Chennai Bench

Sundaram Textiles Ltd.

v.

Commissioner of Central Excise, Tirunelveli

P. Karthikeyan, Technical Member

Final Order No. 43 of 2008

Appeal No. S/162 of 2005

January 18, 2008

Management Consultant’s Services

Section 65 of the Finance Act, 1994 - Management Consultant’s service - Period 28-2-1999 to 16-8-2002 - Assessee entered into an agreement with a foreign company ‘J’ for receiving Total Productive Maintenance (TPM) from ‘J’ - Revenue considering ‘TPM’ to be covered under ‘management consultants’ services demanded service tax from assessee and ‘J’ - Assessee’s case was that Japanese Company owned Trade Mark and Intellectual Property rights relating to TPM; agreement provided for transfer of intellectual property rights; and, therefore service provided by ‘J’ came under ‘Intellectual Property’ which was not liable to service tax at material time - Whether assessee’s case was to be accepted - Held, yes [Para 5]

Section 68 of the Finance Act, 1994 - Payment of Service tax - Period 28-2-1999 to 16-8-2002 - Whether assessee, being receiver of services provided by foreigner company, was not liable to pay service tax on behalf of foreign company during material period - Held, yes

>> Facts

During the period 28-2-1999 to 16-8-2002 the assessee entered into an agreement with ‘J’, a foreign company, for receiving ‘Total Productive Maintenance’ (TPM) from ‘J’. In terms of agreement assessee was liable to pay taxes due from ‘J’ in India. The original authority observed that ‘TPM’ came under the category of ‘Management consultancy service’ and demanded service tax from the assessee and ‘J’ and imposed penalties.

On appeal the assessee’s case was that the Japanese Company owned Trade Mark and Intellectual Property rights relating to TPM; agreement provided for transfer of intellectual property rights; and, therefore the service provided by ‘J’ came under ‘Intellectual Property’ which was not liable to service tax at the material time.

>> Held

‘J’ rendered a patented service called ‘Total Productive Maintenance’ to the assessee. Of and on personnel of ‘J’ visited the assessee and trained its staff in ‘Total Productive Maintenance’ (TPM). TPM helped in increasing production, and simultaneously in increasing employee morale and job satisfaction. It was a tool intended to enhance the productivity of an establishment on a continuing basis. The technology was transferred through audio and video devices as patented intellectual property. The TPM was a patented technique and intellectual property was transferred for consideration to the assessee for its use. Intellectual property became a taxable service much after the material period. Therefore, the same activity engaged in by ‘J’ could not be taxed as ‘Management Consultancy’ during the material period. From the records, it was seen that the tax for consideration for the services was paid by the assessee. The assessee as a receiver of service provided by Japanese Company was not liable to pay the service tax during the material period. Moreover, it is a settled position that tax has to be demanded from a person who is found liable to discharge the tax. Service tax was demanded from the assessee and ‘J’ in the order of the original authority holding both of them as assessee. Tax could not be demanded in the style of ‘from A and B as assessee’ where A and B are different legal entities. If B is an agent of A and liability of A is demanded from B as the agent of A, that position has to be made clear in the notice as well as the order. That was not the instant case. [Para 5]

Further, in Kerala State Electricity Board v. CCE 2006 (187) ELT 111/[2006] 3 STT 138 (Bang. - Cestat), a Division Bench of the Tribunal inter alia observed that the correct interpretation of rule 6 of Service Tax Rules would result in holding that in the case of foreigners who render service in India and who do not have an office in India, service Tax is payable by the agent or by any authorised person on behalf of the foreigner/NRI, (the rule as it stood prior to 16-8-2002). In view of said decision assessee, being receiver of services, was not liable to pay service tax on behalf of ‘J’ during the material period. [Para 5]

Thus, the appeal was to be allowed.