Technical Assistance For Manufacture Of Aircraft & Engines Not Covered Under IPR-Services: CESTAT

The Kolkata Bench of Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that technical assistance for the manufacture of aircraft and engines is not covered under the category of "Intellectual Property Services" (IPR-Services).

The bench of Ashok Jindal (Judicial Member) and Rajeev Tandon (Technical Member) has observed that technical knowhow provided by a foreign company to an Indian company under a license for manufacture of goods for consideration of royalty equal to a percentage of the net sale price of the goods was nowhere registered or patented in India as an IPR service, and therefore, the recipient of the service was not liable to pay service tax under RCM as an IPR service.

The appellant/assessee, Hindustan Aeronautics Limited (HAL), is a public sector company engaged in the manufacture, repair, and overhaul of aircraft engines and registered with the Service Tax Authorities under the head “Management, Maintenance, or Repair Service.”.

During the course of the audit undertaken by the Department, it was pointed out that the appellant was liable to pay service tax under the reverse charge mechanism (RCM) towards expenses incurred by them in foreign currency on account of the license 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 exports of service.

The Department, while invoking an extended period of limitation, issued the Show Cause Notice. The department pointed 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, the appellant was required to discharge the due service tax on the same under RCM.

The issue raised was whether the appellant 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 the transfer of technical know-how and technical assistance for the manufacture of aircraft and engines under the category of "Intellectual Property Services.".

The appellant contended 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 the transfer of technical know-how, personal instructions, training, rendering assistance for licensed production, and setting up of an overhaul facility with the appellant. The technology so received was made use of by the appellant, and the license fee, along with other incidental expenses, were paid to the overseas enterprise. The technology shared by M/s. Rosboronexport is confidential in nature and qualified as undisclosed information, which is specifically excluded from the meaning and definition of IPR, and the technology transferred by M/s. Rosboronexport is not registered under any law for the time being in force.

The tribunal held that the transfer of technology by M/s. Rosboronexport would not qualify as an “intellectual property right” within the meaning of Section 65(55a). Therefore, it would not be covered under the definition of “intellectual property service” within the scope of Section 65(55b).

Counsel For Appellant: Rajen Mishra

Counsel For Respondent: J. Chattopadhyay

Case Title: M/s. Hindustan Aeronautics Limited Versus Commissioner of Central Excise, Customs and Service Tax

Case No.: Service Tax Appeal No. 76328 of 2014

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