Consulting engineer — The agreement had 3 parts
i.e., Licence Agreement, Engineering Agreement, Guarantee Agreement —
Designs, technical knowhow, etc. prepared by the appellant in Boston,
stand transferred by them to IOCL — It was specifically observed that
the services rendered by the appellant were consumed in India — Whether
import of services a taxable event? — The taxable event not occurred in
India as the activity of development of technology, know-how, transfer
of design, drawing, etc. taken place in USA.
Extended period of
limitation — Any bona fide lapse not to make enquiries about its
obligation to pay duty/tax, cannot be made reason for invocation of
extended period unless there is evidence to show that such lapse was on
account of mala fide intention, and with guilty mind of avoiding payment
of tax — Demand is barred by limitation — Appeal allowed.
Facts:
The
Department demanded Service tax along with imposition of penalty on the
ground that the appellants rendered Consulting Engineer Services to
M/s. IOCL Gujarat. The appellant a company incorporated under the laws
of the USA, entered into an agreement with IOCL Gujarat Refinery,
Vadodara for designing, constructing, operating, maintaining, repairing,
re-constructing of unit for the commercial practice of Fluidised
Catalytic Cracking (FCC). The said agreement had three parts i.e.,
Licence Agreement, Engineering Agreement, Guarantee Agreement. Certain
technical know-how and patent rights were licensed to IOCL. The
technical information and patents were solely meant to be used by IOCL
for the purpose of designing, constructing, operating, maintaining and
repairing and re-constructing units at Gujarat Refinery. In lieu, the
appellants were paid royalty. The appellants provided certain
engineering design to prepare, process, design and basic engineering
designs and deliver copies of the same to IOCL.
? The Revenue
took a view that the appellant was within the scope of Consulting
Engineer’s services and was required to pay Service tax on the same. The
Commissioner held that merely because the ground work of preparation of
services had been done outside India, the services had been provided by
organisation located outside India, the services had to be treated as
those rendered outside India. The services stand received and consumed
by IOCL, who are located within territorial waters of India and as such
they have to be treated as having been provided/rendered in India.
?
The appellant challenged the contention of the Department stating that
the services so provided by them were provided from a place outside the
territory of India and that no service rendered in the areas beyond the
territorial waters of India and designated areas, shall not be liable to
Service tax.
(i) For the above proposition, they stated that
development of designs, prices, preparation of operating manual, etc.
was done by them in Boston, USA and copies of design/manual so prepared
were sent by them from the USA to IOCL in India. As such, the services
were developed by them entirely outside the territory of India for use
by IOCL.
(ii) They further clarified that though the agreement
provided for deputation of skilled personnel to IOCL in India, none of
their experts visited India. It was basically a transfer of technical
know-how/design, which is nothing but the goods to the appellant.
(iii)
It could be specifically observed that the services rendered by the
appellant had been consumed in India and the services were not rendered
in India. The consumption of service in India is not a taxable event.
Situs of the tax would be where the taxable event occurs and not where
the effect or the consequence thereof is felt.
(iv) The activity
of development of technology, technical information and know-how,
transfer of design, drawing etc. has taken place in the USA and the
consumption of such services was in India.
(v) Further, the
demand in question was barred by limitation. The Commissioner had
invoked the extended period of limitation. The Commissioner had not
referred to or relied upon any instance to show that the appellants had
knowingly suppressed the above facts from the Department, with mala fide
intention not to pay the tax. As per law, misstatement or suppression
or contravention of any provisions, has to be with intent to evade
payment of duty. It was held that bona fide lapse on the part of the
assessee to get licences and to pay duty, could not be made the reason
for invoking extended period.
Held:
In view of the above, the demand was set aside and the appeal was allowed in favour of the appellant.
