COMMISSIONER OF CENTRAL EXCISE Vs. PINNACLE INDUSTRIES LTD.

JUDGEMENT

(1.) THE Revenue has filed this appeal against the order of the Commissioner (Appeals -I), Indore dated 20.7.2004. The respondents, M/s. Pinnacle Industries Ltd. are engaged in the manufacture of furniture and motor vehicle parts. They entered into an agreement with M/s. Saporiti, Italy (a foreign company) on 23.11.1998 for availing the benefit of technical know -how for manufacture of furniture and also sale thereof in India. The agreement entered into by them reveals the following two aspects:

(2.) A show cause notice was issued to them on 13.10. 2003, demanding service tax on "consulting engineer", besides contemplating penalty and interest. The case was adjudicated by the Assistant Commission vide his Order -in -Original dated 17.3.2004. They were found liable to pay service tax along with interest as the service was received by them under "consulting engineer" who does not have any office in India and also in terms of Rule 2(1) of the Service Tax Rules 1994 as amended vide Notification No. 12/2002 -ST dated 1.8.2002. The respondents were also imposed a penalty. Being aggrieved, the respondents went in appeal before the Commissioner (Appeals). The Commissioner (Appeals) in his Order -in -Appeal made the following observations:

(3.) NOW the Revenue has filed this appeal before us. The learned authorised representative of the department for the Revenue reiterates the grounds of appeal. He has clarified that the limited issue here is whether rendering technical know -how amounts to rendering service as a consulting engineer. He refers to the Distribution and Technical Collaboration Contract (DTCC) entered into between the two parties and points out that on 16.8.2002 an amendment has been brought in the Service Tax Rules which makes the service recipient liable to pay service tax if the service provider were in a foreign country. According to him royalty is a consideration for service and hence it represents the value of service. The contention of the learned representative is that in this case particularly the rendering of technical know - how amounts to a service. On being asked, he also clarifies that out of a sum of Rs. 1,98,053/ - which was the balance demanded on account of royalty, the Revenue is contesting only in respect of Rs. 1,67,977/ - which has become payable after the said amendment on 16.8.2002. The learned consultant to the respondents argues that royalty is only a share of profit and to support his contention he relies upon the Tribunal's decision in Navinon Ltd. v. Commissioner of Central Excise, Mumbai -VI . It was held here that royalty represents sharing of profit reserved by owner for permitting another person to use his property. Para 5 of the said order reads as under: