DAY INTERNATIONAL INC. Vs. COMMISSIONER OF C. EX.

JUDGEMENT

(1.) THE impugned order sustained demand of service tax of Rs. 53,615/ - from M/s. Day International Inc., USA (Day International) under the category of "Consulting Engineer" and penalty imposed on it under Sections 75, 75A, 76 and 77 of the Finance Act, 1994 (the Act). The Commissioner (Appeals) also confirmed the demand of interest on the service tax demanded.

(2.) THE facts of the case are that Day International manufacture textile machinery and parts. Day International entered into an agreement with M/s. Lakshmi Machine Works (LMW) for manufacture cots and aprons (components of ring frame machine) by LMW. Day International provided technical know -how, technical assistance and imparted training in marketing and manufacture of cots and aprons to LMW. LMW obtained manufacturing and selling right of the licensed products and right to use the trade name of Day International. As per the agreement, Day International received royalty at the rate of 3% of the sale proceeds of the licensed products. LMW made payment of Rs. 10,72,292/ - to Day International during 1 -4 -2001 to 30 -9 -2001. Service tax on this amount is demanded along with interest from Day International treating the same as gross value of engineering consultancy rendered by Day international to LMW. After due process of law, the original authority and the first appellate authority passed their respective orders discussed above.

(3.) IN the appeal filed, Day International has relied on a plethora of case law all of which held that transfer of technical know -how did not constitute Consulting Engineer Service and that royalty paid in exchange was in the form of a share of profit and not a payment for any service received. In Navinon Ltd. (supra), the Tribunal had held the view that royalty payments were not in consideration for any service provided. The provision of technical know -how was therefore not any service. In Yamaha Motors (I) Pvt. Ltd. v. CCE, Delhi -IV it was held that personal instruction and training carried out by the staff of the foreign collaborator formed part of transfer of know -how and involved teaching. In Bajaj Auto Ltd. v. CCE the Tribunal had held that no service was involved in the case of transfer of intangible property and service tax was not liable to be paid on such transactions. Several other decisions of the Tribunal were also cited in support of the plea that royalty payment towards the supply of technical know -how did not attract service tax. Arguments were advanced with case law against invocation of the larger period and imposition of penalty.