1. Both the appeals have been filed against different Orders-in-Original No. 06/COMM/ST/SLG/09-10, dated 25-3-2010; 30-38/COMM/ST/SLG/16-17, dated 21-10-2016. The period of dispute is March, 2005 to January, 2015.
2. The facts of the case in brief are that the appellant are engaged in the manufacture of printing inks falling under Chapter 32 of CETA, 1985. From the Technical Collaboration Agreement between the appellant (licensee) and M/s. SICPA Holding Switzerland (licensor), the Department came to know that the appellant would manufacture their product in India using Technical information, know-how and Patent rights of M/s. SICPA Holding Switzerland. As per Articles 6.1 and 6.2 of the Agreement, the Noticee would pay a lump-sum of SFr. 525000.00 and a royalty of 5% on net sales of all the products and parts thereof, manufactured and/or sold in India by the Applicant during the validity period of the Agreement. As per Clause 5.1 of Technical Collaboration, the Applicant have been granted the Right to use Technical information as well as patents of M/s. SICPA Holding Switzerland which the licensor filed or would file for said Technical information. Thereby, the Department came to the conclusion that the activity of the Applicant is falling under IPR service, as defined under Section 65(55b), being a taxable service under Section 65(105)(zzr) of the Finance Act, 1994. The applicant neither took registration nor paid Service Tax on the said servic
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e received for the period from May, 2005 to March, 2009. Accordingly, the Department issued a show-cause notice on 10-8-2009 against the Applicant for demand of Service Tax of Rs. 1,94,44,470.00 and proposal for penalty under various provisions of Finance Act, 1994. The learned Commissioner confirmed the demand in the show-cause notice and imposed penalties under various provisions of Finance Act, 1994.
3.1 The contention of the appellant is that in the instant case, the appellant had entered into the Agreement dated 17-1-1991 with SICPA Holding Switzerland to obtain know-how, technical information and assistance from SICPA Holding Switzerland for the manufacture of its products.
3.2 The contention of the appellant is that no patents exist in respect of the Technical know-how granted to the appellant under agreement. It is submitted that the whole of the know-how involved in the present Agreement is confidential information, which is not in the public domain. There is no question of the same being patented. In fact, the very nature of know-how is that it is confidential information which is not put into public domain. The payments made under the Agreement were only for Technical information and know-how received. It is submitted that the technology and know-how shared by SICPA Holding Switzerland with the appellant is confidential information, which is not patented anywhere in the world. It is further submitted that the representation made by the appellant in one of its letters that the technology is patented in Switzerland was on account of bona fide mistake of fact and the appellant humbly confirmed that the technology is nothing but confidential know-how, which is not patented anywhere in the world.
3.3 The contention of the appellant is that the transfer of know-how and technical information does not fall under the category of "Intellectual Property service", as defined under Section 65(55b) of the Finance Act, 1994.
3.4 The contention of the appellant is that the definition of taxable service includes only such Intellectual Property Rights that are prescribed under the Indian law for the time being in force.
3.5 The contention is that the transfer of know-how is a transaction in property and not a transaction in service. The contention is that know-how is not an "Intellectual Property Right" as per Section 65(55a) and hence, the transfer of the same will not fall under the category of "Intellectual Property Service" in terms of Section 65(55b) of the Finance Act, 1994.
3.6 The contention is that the transaction involving transfer of know-how or technology is a transaction in property and not a service transaction. In the present case, SICPA Holding Switzerland had transferred know-how and technical information and assistance for the manufacture of its products to the appellant. The said know-how was already in the possession and use of SICPA Holding Switzerland, which was transferred to the appellant along with a right to manufacture and sell the product using that know-how.
3.7 The contention is that the Agreement for provision of technical information and know-how, was entered into on 17th January, 1991 and the appellant received the technical information and know-how soon after that date. Therefore, this transaction cannot be taxed as an "Intellectual Property Service" under Section 65(55b) read with 65(105)(zzr) of the Finance Act, 1994, as the "Intellectual Property Service" was brought within service tax net w.e.f. 10-9-2004.
3.8 The appellant placed reliance on the Tribunal's decision in the case of Modi-Mundipharma Pvt. Ltd. v. Commissioner of Central Excise, Meerut reported in : 2009 (15) S.T.R. 713 (Tri.-Del.).
3.9 The contention of the appellant is that no service tax is payable as there was no levy at the time of occurrence of the taxable event at the time of Agreement. In fact, assuming that the transfer of know-how is a service, such transfer cannot be said to be in the nature of a continuing service. The service ends, the moment the IPR is transferred. The fact that the IPR is used later on by the transferee or that the payment for the IPR is received in installments later on, will not change the time of the taxable event. The taxable event occurs when the IPR/know-how is transferred. The appellant further relied on the following judgments in support of the said contention:
(i) 20th Century Finance Corpn. Ltd. & Anr. v. State of Maharashtra : 2000 (119) STC 182 (SC);
(ii) Bajaj Allianz General Insurance Co. Ltd. v. CCE, Pune : 2009 (13) S.T.R. 259 (Tri.-Bom.)
3.10 The appellant also placed reliance on the Trade Notice issued by the Commissioner of Central Excise, Madurai vide Circular No. 43/2008, dated 11-9-2008, submitting that the entire exercise is revenue neutral.
3.11 The contention of the appellant is that the service provider is situated outside India and they did not have any office in India. Hence, in view of the decision of the Hon'ble Bombay High Court in the case of Indian National Shipowners Association v. UOI : 2009 (13) S.T.R. 235 (Bom.), which was later on, upheld by the Hon'ble Apex Court, appellant are liable to pay Service Tax before 18-4-2006.
4. Rebutting the contention of the appellant that no liability of service tax arises on the Agreement between appellant and SICPA Holding Switzerland, since the Agreement was for providing technical assistance, the Ld. Counsel for the department contended that in view of Article 5 of Technical Collaboration Agreement (page 123 of the Appeal Paper-Book), SICPA Holding Switzerland has granted to the appellant exclusive technical information under all the relevant Patents and in view of that, Royalty of 5 per cent on the net sale of all the products was to be paid. Article 7 of the said Agreement clearly states that the licensee will be given right to Patents in India in respect of the products on payment of Royalty. As regards the contention of the appellant that no Patents are registered in India, the Learned Counsel for the department submitted that Switzerland being a notifying country under Section 133 of the Patent Act, 1970 for the purposes of Patents, clearly shows that substantial protection under the Patent's Act was available to the appellant as well, and the appellant is liable to service tax on the services given by SICPA Holding Switzerland to the appellant. It is also the contention of the Learned Counsel for the department that the transfer of know-how as per the Technical Agreement was not on one time basis but was on continual basis, and was to be transmitted to enable the appellant to manufacture the products on continual basis. In so far as the contention of the appellant that they are entitled to abatement for the R&D. Cess paid for correct computation of the liability, the Learned Counsel for the department submitted that the Learned adjudicating authority has clearly observed that in the absence of disclosure of the total amount of Royalty paid to the appellant, vide letter dated 5-6-2008 issued by the jurisdictional Range Officer, the appellant had not been able to substantiate their claim of incorrect computation of liability. As regards the limitation aspect, the contention of the Learned Counsel for the department is that pursuant to the said Agreement in 1991, though they received services six to seven months prior to the levy of Tax on the said services, but they did not register themselves with the department, nor did they pay any Service Tax during the period May, 2005 to March, 2009, which clearly establishes an intention to evade payment of Service Tax and hence, the demand is not time-barred.
5. From the records it appears that identical issue has come up before the Tribunal in the case of Reliance Industries Ltd. v. CCE & ST, LTU, Mumbai [2016 (44) S.T.R. 82 (Tri.-Mumbai). The relevant portion of the said judgement is reproduced below:-
"6. While deciding this we have to bear in mind that? India is a signatory to the Paris Convention for the Protection of Industrial Properties. The said convention was the first major step taken to help creators of intellectual property to ensure that their intellectual works were protected in other countries. In furtherance to the same a Patent Cooperation Treaty, was signed by member countries, the same has been embodied in Chapter XXII of the Patents Act, 1970. The said treaty spells out a detailed mechanism for the filing of international applications by an inventor and provides that once such an application is made and registered in the member country, then the IPR would be protected in that member country. Thus, there appears to be a codified law providing for Recognition and Protection under the Indian Laws even in respect of Patents registered overseas. In our view, when the legislature has specifically provided that an Intellectual Property Right, that could be taxed as an IPR service is a right to an intangible property, which is recognised under any law for the time being in force, obviously the law being referred to here has to be an Indian Law and not the recognition of the intangible property right under the law of a third country. If an intangible property right was to refer to a right which is recognised by any country, then the legislature would not have used the expression "under any law for the time being in force". The legislature would have merely stated that an Intellectual Property Right would mean any right to an intangible property. There would have been no need for it to qualify the same with a recognition under any law for the time being in force."
6. Further the issue came up before the Tribunal in the case of Chambal Fertilizers & Chemicals Ltd. v. CCE, Jaipur-I [2016 (45) S.T.R. 118 (Tri.-Del.)]. Relevant portion of the said judgement is reproduced below:-
"5. We have heard both sides and examined the appeal records. The only point for decision is that whether or not the appellant received taxable service under the category of "Intellectual Property Right service" during the relevant period. The admitted facts of the case are that the technical know-how, engineering design licence involved in these agreements with foreign service providers are not registered in India under Indian law. However, the original authority held that registration of IPR under Indian law is only for obtaining protection from its infringement. He observed that the levy of tax is not dependent on the fact of such registration. We find that such conclusion is not legally tenable and is beyond the scope of taxable service as defined in Finance Act, 1994:
"Section 65(105)(zzr) of the Act defines in the taxable IPR service tax as under:
"Taxable service" means any service provided or to be provided to any person by the holder of intellectual property right, in relation to intellectual property service;
Section 65(55a) of the Act defines "Intellectual Property Right" to mean as under:
"Intellectual Property Right" means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright."
6. The IPR as defined should be a right under any law for the time being in force. The legal position on this issue has been examined by various decisions of the Tribunal which are as under:
(a) Rochem Separation Systems (India) Private Limited v. Commissioner of Service Tax, Mumbai-I : 2015 (39) S.T.R. 112 (Tri.-Mum.) [para 8];
(b) Whirlpool of India Limited v. CCE & S.T., Delhi - 2016-VIL-57-CESTAT-DEL-ST [para 7];
(c) Tata Consultancy Services Limited v. C.S.T., Mumbai : 2015-TIOL-2370-CESTAT-MUM : 2016 (41) S.T.R. 121 (Tri.) [para 4.1];
(d) Asea Brown Boveri Ltd. v. CCE & S.T., Bangalore : 2016-VIL-480-CESTAT-BLR-ST [para 6.7.1];
(e) Reliance Industries Ltd. v. CCE. & S. Tax, Mumbai : 2016-TIOL-1654-CESTAT-MUM : 2016 (44) S.T.R. 82 (Tri.) [para 2].
7. It has been held that to be categorized for service tax purpose under IPR, such right should have been registered with trade mark/patent authority. In the present case, admittedly, there is no right recognized as IPR under any law for the time being in force in India. As such, there can be no provision of IPR service for tax liability on reverse charge basis.
8. In view of the settled legal position as held in various decisions of the Tribunal discussed above, we find that impugned order is without merits and accordingly set aside the same. The appeal is allowed."
7. During the course of argument, Ld. Counsel for the department has submitted that the matter has reached to the Supreme Court in the case of Commissioner v. Reliance Industries Ltd. [2017 (51) S.T.R. J187 (S.C.)], where the appeal has been admitted, but no stay had been granted. In the light of the above discussion, we have no option except to follow our earlier decision (supra). Hence, by following our earlier order, we set aside the impugned orders and allow the appeals. In the result both the appeals are allowed