The Kolkata bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT) has provided relief to Hindustan Aeronautics by setting aside the service tax on license fees and other incidental expenses paid to a foreign company.
The issue to be decided was whether the Assessee is liable to pay service tax on the license fees and other incidental expenses paid to the Russian Company i.e. M/s. Rosboronexport, Moscow, Russia towards transfer of technical knowhow and technical assistance for manufacture of aircraft & engines under the category of “Intellectual Property Services’ ‘?
The Assessee M/s. Hindustan Aeronautics Limited was a public sector company engaged in the manufacture, repair and overhaul of aircraft engines and registered with the Service Tax Authorities viz. the Commissioner of Central Excise, Customs and Service Tax, Bhubaneswar-I Commissionerate, under the head “Management, Maintenance or Repair service”. They have filed the present appeal assailing the Order-in-Original No. COMMR/B-I/ST-02/2014 dated 27.06.2014.
Further was issued a Show Cause Notice dated 19.04.2013 seeking recovery of Service Tax for an amount of Rs.26,47,16,000/- for the Financial Year 2007-08 to 2011-12 under Section 73(1) of the Finance Act, 19941 along with interest, as leviable under Section 75 and imposition of penalty under Sections 76, 77 and 78 of the Act.
During the course of the audit undertaken by the Department, it was pointed out that the appellant was liable to pay Service Tax under reverse charge mechanism ( RCM ), towards expenses incurred by them in foreign currency on account of Licence Fee, Documentation charges and Foreign Technician Fees. The appellant was also required to pay Service Tax on amounts received from the foreign company claimed by them as Export of Service.
Mr. Rajen Mishra representing the assessee submitted that pursuant to an inter-governmental agreement between the Republic of India and the Russian Federation, the Russian Corporation viz. M/s. Rosoboronexport, Moscow, Russia signed a Technology Transfer Agreement with the appellant for transfer of technical knowhow, personal instructions, training, rendering assistance for licensed production and setting up of overhaul facility with the appellant. The technology so received was made use of by the appellant and the Licence Fee thereto along with other incidental expenses were paid to the overseas enterprise.
Mr. Chattopadhyay representing the department, invoking extended period of limitation, issued the above Show Cause Notice inter alia pointing out that appropriate tax was not paid on the transfer of technology, which is nothing but “Intellectual Property Service” rendered by the overseas party and that by virtue of Section 66A of the Act, the appellant was required to discharge due Service Tax on the same under RCM.
The bench however noted that the Show Cause Notice for the period indicated supra was issued to the assessee on 19.04.2013, invoking the extended period of limitation, alleging suppression of facts unearthed during audit of the company’s record. In view of the fact that the assessee is a public sector company completely under the control of the Ministry of Defence and owned by the Government of India, further find it rather unacceptable and quite improper to assume intent to evade payment of duty on the part of the organization.
Therefore, the two member bench of the tribunal comprising Ashok Jindal ( Judicial member) and Rajeev Tandon ( Technical member) does not agree with the findings of the Commissioner that the assessee had deliberately suppressed material information by wrongly classifying the service as ‘Export of Service’ with the intent to evade duty. On the contrary, the assessee has pointed out that it was inappropriately shown as ‘Export of Service,’ but nothing was concealed in the statutory records and returns filed..
Thus, the demand for the extended period cannot be sustained as there is nothing on record to establish mala-fides on the part of the appellant. Further hold that the extended period of limitation is not invokable in the circumstances.
CESTAT set aside the impugned order and allow the appeal of the assessee.
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