The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Rosoboronexport, Moscow, being a governmental/ state intermediary organization under the India-Russia inter-governmental arrangement, is neither “a scientist or a technocrat” nor “a science or technology institution or organization” within the meaning of the definition of “Scientific or Technical Consultancy Service”. Consequently, payments made by HAL under the agreement for transfer of licence, technology documentation, and related technical support for SU-30 MKI production could not be taxed as Scientific or Technical Consultancy Services (STC) under reverse charge.
Thus, in the absence of evidence that HAL received taxable advice, consultancy, or technical assistance from any individual scientist or technocrat, the demand of service tax and penalty on the STC component was unsustainable. Accordingly, the impugned orders were set aside to the extent they confirmed service tax demand and penalty under STC, while the demand and penalty relating to MMR were sustained because that issue had not been contested.
The Division Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) found that an identical issue had already been examined in HAL’s own cases by coordinate benches at Mumbai, Allahabad, and Bangalore in relation to agreements for technology transfer and technical assistance connected with aircraft manufacture under inter-governmental arrangements. The Tribunal placed specific reliance on Commissioner of Central Excise, Nashik v. Hindustan Aeronautics Ltd. [2015 (40) STR 289 (Tri-Mum)], where Rosoboronexport’s status and the nature of the arrangement had been considered and it had been held that the activity did not fall within STC.
The Tribunal reproduced and adopted the reasoning from the earlier Mumbai Bench decision that, under the statutory definition, STC requires that advice, consultancy, or scientific or technical assistance must be rendered by a scientist or technocrat, or by a science or technology institution or organization. It noted that Rosoboronexport was not a scientist or technocrat, and on examination of its status it appeared to be a joint stock company and an exclusive state intermediary agency responsible for import and export of defence and dual-use products, technologies, and services, with guaranteed state support. On that description, it could not be regarded as a science or technology institution or organization.
The Tribunal further noted the earlier authorities relied upon in the Mumbai Bench decision, where it was held that transfer of know-how, brand names, trademarks, or permanent transfer of intellectual property cannot conceptually be reduced to mere advice, consultancy, or scientific/technical assistance, and that the provider itself must answer the statutory description of a science or technology institution or organization. Those authorities also emphasized that the Revenue must establish all statutory ingredients and cannot merely infer STC from technical subject matter.
Applying those precedents to the present case, the Tribunal held that the agreement dated October 4, 2000 between HAL and Rosoboronexport was in terms of the inter-governmental agreement between India and Russia and involved transfer of licence and technology documentation for SU-30 MKI production. From the agreement and the earlier judgments, the Tribunal concluded that Rosoboronexport was a governmental organization and therefore could not be termed a scientist, technocrat, or scientific or technology institution or organization.
The Tribunal also found that there was no other evidence on record to show that HAL had received advice, consultancy, or technical assistance from any individual scientist or technocrat in their individual capacity or that payments had been made to such persons. Accordingly, inter-governmental technology transfer arrangements entered into by HAL did not attract service tax under the service categories invoked by the Department.
Briefly, the appellant, Hindustan Aeronautics Ltd. (HAL), Avionics Division, had entered into an agreement with Federal State Unitary Enterprise Rosoboronexport, Moscow, pursuant to an inter-governmental agreement between the Government of India and the Government of the Russian Federation, for transfer of licence and technological documentation for production of SU-30 MKI aircraft in India and for technical assistance in setting up the production arrangement. The arrangement included transfer of technology, transfer of technical documents, technical assistance for setting up the manufacturing facility, supply of parts, and training of employees, for which payments were made by HAL to Rosoboronexport. The Department treated these activities as receipt of STC from a provider located outside India and therefore sought to levy service tax on reverse charge basis.
HAL’s primary case was that Rosoboronexport was a government organization and the sole Russian state intermediary agency for export of dual-use technology, and therefore could not be characterized as “a scientist or technocrat or a science or technology institution or organization” for the purposes of the definition of STC.
The Department argued that individual experts and technicians had been posted to HAL’s unit for imparting advice and consultancy and that the services therefore fell within the scope of STC. It also attempted to characterize Rosoboronexport as a foreign-based scientific or technical organization linked with Rostechnologies.
Appearances:
Disha Gursahaney, Advocate for the Appellant/ Assessee
M. Anukathir Surya, Authorized Representative for the Department
