CCE Vs. VELEO FRICTION MATERIAL INDIA PVT. LTD.

JUDGEMENT

(1.) THE Revenue is in appeal against an order passed by the Commissioner (Appeals) setting aside the demand of service tax on the respondents. The respondents namely M/s. Valeo Friction Materials India Pvt. Ltd. , are a joint venture company registered in India, consisting of M/s. Valeo France [a French Company] and M/s. Anand Pvt. Ltd. [an Indian Company]. This joint venture company, which was set up for manufacture, in India, of friction materials for clutch systems for motor vehicles, entered into a 'Technology Licence Agreement' with the French company on 11.2.1998. Under Article 2 of this agreement, the French company was to transfer the required technology to the respondents [joint venture company] on an exclusive, non -transferable, non -assignable basis for the purpose of manufacture and sale of the aforesaid products in India. Under Article 12 of the agreement, the respondents were to pay to the foreign company a royalty of 3.75% of the annual net sales value of products sold by the company in India during the seven -year period commencing on 1st January 2000, as consideration for the transfer of technology pursuant to Article 2 ibid. The technical know -how was received by the respondents in 1998 itself and the payment for the same was made by them in 2003. The show -cause notice issued by the department to the respondents demanded service tax on the amounts so paid by the respondents to the foreign company. This demand was confirmed by the original authority but set aside by the first appellate authority. Ld. Commissioner (Appeals) held that the foreign company did not render any taxable service to the respondents, apart from holding that Rule 6 of the Service Tax Rules 1994 was wrongly invoked for demanding such tax from the respondents.

(2.) HEARD both sides. Ld. JDR has reiterated the grounds of the appeal, after referring to Article 5 and Article 6 of the Technology Licence Agreement. Ld. Counsel for the respondents, relying on the Tribunal's decision in Navinon Ltd. Vs CCE - : 2004 (172) ELT 400 (Tri. mumbai) = (2004 -TIOL -710 -CESTAT -MUM), has contended that transfer of technical know -how was not a taxable service under the Finance Act 1994. Referring to the show -cause notice, ld. Counsel submits that the notice had not taken aid from Article 5 or Article 6 of the agreement for demanding service tax. According to ld. Advocate, the ground raised in the appeal to justify the decision of the original authority is beyond the scope of the show -cause notice.