In M/s Bharat Petroleum Corporation Ltd v. CCE, Mumbai-II, the Mumbai bench of the CESTAT held that service tax cannot be demanded in respect of agreements are for grant of license to use technical know-how or technical information by the foreign companies since such services cannot be treated as ‘Consulting Engineering Service’ under the Finance Act, 1994.
In the instant case, the appellant entered into agreements with various foreign entities for obtaining the license to use technical know-how and technical information and also various engineering services, in connection with setting up of their manufacturing plant/refineries. The Revenue demanded the tax on the ground that the appellants received taxable services. Penalty proceedings were also initiated against the appellants.
The appellants relying on the agreements contended that there is no consultation involved in terms of the agreement. A perusal of the various agreements will clearly show that the appellants were receiving process know-how and technical information which is owned by the foreign companies. The technology and production process of various products was developed by the foreign companies and the same is supplied to the appellant in connection with setting up of the refinery in India. Essentially, the agreement is for such transfer of technical know-how. Thus, any engineering service, technical assistance, and guarantees provided by the suppliers of such technical know-how cannot be brought under the tax category of consulting engineer service,” the bench said while allowing the second appeal.
According to them, foreign collaborators are thus not covered under the category of “Consulting Engineer”.
The two-member bench of the Appellate Tribunal comprising Ramesh Nair (JM) C J Mathew (AM) after analyzing the provisions of the agreement, accepted the contentions of the appellants that it was for grant of license to use technical know-how or technical information by the foreign companies and hence cannot be considered as ‘Consulting Engineering Service’.
Accepting the above arguments, the CESTAT held that from the nature of service it is very clear that the said services cannot be covered under the “Consulting Engineering Service”.
The bench further relied on a plethora of decisions, especially in Bharat Oman Refineries Ltd. Vs. CCE & SERVICE TAX, Bhopal wherein the appeal of the assessee on a similar issue was allowed.
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