SWITZER INSTRUMENTS LTD. Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) THE appellants herein who are manufacturers of 'process control instruments' had entered into a Manufacturing Licensing Agreement with M/s. Delta Controls Ltd., England on 24 -3 -1997 for the right to manufacture and sell the licenced products to its customers. In terms of Clause 3.1 of the said agreement, Delta Controls have given to the appellants all technical know -how, technical knowledge, information, drawings, patterns or designs for manufacture of temperature switches, pressure switches etc. in consideration for which M/s. Switzer had paid royalty of 5 per cent to Delta Controls. The Department was of the view that Delta Controls had provided technical assistance to the appellants and are therefore liable to service tax under the category of 'consulting engineer's service'. Demand raised on the above basis was dropped by the adjudicating authority whose order was reviewed by the Commissioner who upheld the charge in the notice and hence confirmed the demand of tax of Rs. 36,052 together with interest and also imposed penalties under Sections 76, 77 and 78 of Chapter V of Finance Act, 1994. Hence this appeal.

(2.) I have heard both sides and carefully perused the Manufacturing Licensing Agreement. I agree with the assessees that under the agreement no technical assistance is provided to them by M/s. Delta Controls Ltd. It is only a case of payment of running royalty to Delta Controls and the payment of royalty comes into service tax net only with effect from 10 -9 -2004 as 'intellectual property service'. The period in dispute being prior to the above date, the demand and penalty cannot be sustained. I, therefore, set aside the impugned order and allow the appeal.