The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax was payable on technical know-how service under the category of intellectual property service prior to 1.7.2012.
The bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that IPR service was covered under section 66E (c) with effect from 1.7.2012, and the confirmation of demand on technical know-how service cannot be sustained prior to 1.7.2012. The transfer of technical know-how service cannot be treated as IPR as the same was not registered under any law in India.
The M/s. CG Power & Industrial Solution Ltd.1 (formerly “Crompton Greaves Ltd.”), is engaged in the manufacture of various types of transformers falling under Chapter 85 of CET at their factory situated at Plot No.29-31-32, New Industrial Area No.1, Mandideep, Dist. Raisen (MP). The appellants hold Central Excise registration, and were clearing the finished goods on payment of appropriate Central Excise duty.
The Appellant is also engaged in providing various types of services, including service of testing, erection, installation, works contract, transportation, etc. The appellant successfully bid for a tender floated by M/s. Power Grid Corporation Ltd. [PGCIL], a Government of India Undertaking, in response to the International Competitive Bidding tender floated by PGCIL, for supply of 800 kv Shunt Reactors and 765kv Transformer.
The terms of the tender floated by PGCIL required that in case of offer by a foreign bidder, the bidder should have a joint venture arrangement with a local supplier, who should be a lead partner, containing provision for transfer of technology to the local supplier. Therefore, the Appellant entered into Joint Venture agreement with foreign bidders, acting as a lead partner, with JV partners M/s. Ganz Transelektro Electric Co. Ltd. Hungary, and with Zaporozhtransformator, Ukraine (ZTR).
A Joint Venture Memorandum of Understanding was entered with ZTR for bidding and supplying 800 kv Shunt Reactors to Power Grid Corporation Ltd. [PGCIL], and another Memorandum of Understanding with M/s. Ganz Transelektro Electric Company Ltd., Hungary [GANZ] for jointly bidding for supplying 765 kv Transformers to PGCIL.
As required by PGCIL, the above MOUs also provided for providing technical know-how by ZTR and Ganz to the Appellants, for manufacture of 800 kv Shunt Reactors and 765 kv Transformers, respectively. The Agreements with Ganz & ZTR were entered into on 24.07.2009 and 25.07.2008, i.e. prior to the introduction of the negative list-based Service Tax levy i.e., July 2012.
The show cause notice dated demanding Service Tax alongwith interest and for imposition of penalty, alleging that value for the purpose of determining consideration for Technical know-how allegedly provided by ZTR and GANZ shall be the gross profit margin for the supply of goods to PGCIL for the respective year in which the goods were supplied by the Appellants to PCIL was issued.
The appellant contended that the Commissioner had erred in confirming Service Tax demand by taking the gross profit margin for the sale of the goods manufactured using the technical know-how, erroneously assuming that the entire gross profit margin is on account of the technical know-how.
The tribunal while allowing the appeal held that the technical know-how was transferred to the appellant in 2009, soon after the signing of agreements. It is also an admitted fact that the appellant shared a portion of the PGCIL business with GANZ & ZTR in lieu of transfer of technical know-how.
Case Details
Case Title: CG Power & Industrial Solution Ltd. Versus The Commissioner, CGST & Central Excise, Bhopal
Case No.: Service Tax Appeal No. 53173 Of 2018
Date: 07.04.2025
Counsel For Appellant: Padmavati Pati
Counsel For Respondent: S.K. Meena
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