Service Tax

7. Delay in filing returns and in depositing service tax due to loss of shares involving huge amount in transit and crash of Hard disk. Entire Service tax paid before passing of adjudication order. Whether Penalty sustainable

Held : Penalty Reduced.

The fact was that the delay was caused in filing the return and in depositing Tax due to unavoidable reasons beyond control of assessee dealer. The share involving huge amount was lost in transit in the month of May and entire data was lost due to crash of Hard disk of their office.

The tribunal held that taking into Account the fact that entire amount was paid before the adjudication of the case and interest has also been deposited and the fact that no intention to evade payment of tax on part of the assessee dealer was brought on record. The penalty was reduced to a token minimum.

Jhunjariji Investment Pvt. Ltd. vs. CCE Kolkata 186 ELT 57 (Tri-Kolkata)

8. Whether technical collaboration Agree-ment between the parties in terms of the Agreement amounts to providing consulting engineering service or exchange of intangible property

Held on facts: - Transfer of Intellectual property

The appellant M/s. Yamaha Motors (I) Pvt. Ltd. signed a Technical collaboration Agreement with M/s Yamaha Motor Co. Ltd. Japan. The collaboration agreement was for manufacture of YBX model motorcycles in India. The recitals of the agreement are as under

"Whereas, Yamaha owns technical information relating to the manufacture and assembly of certain motorcycles parts and components thereof and certain trademarks and other intellectual property rights such as patents, design patents and utility models relating to motorcycles, parts and components thereof, all of which are part of the goodwill of Yamaha in the production and worldwide sale of motorcycles, parts and components thereof."

"2.1 Subject to the terms and condition herein contained, Yamaha hereby grants to the licensee on exclusive, non-transferable and indivisible licence, without any right to sub-licence to any person, to use Technical Information for the purpose of doing the following within the Territory during the term of this Agreement.

1. To manufacture or process locally Manufactured Parts at the Factory;

2. To have Locally Manufactured Parts manufactured or processed in the Territory by sub-contractors approved by Yamaha in accordance with Articles 3, 10.5,12.4 and 13 hereof;

3. To procure Locally procured Parts and to Import other Imported Parts approved by Yamaha in accordance with Articles 10 and 13 hereof;

4. To assemble Products from Parts of the Factory;

5. To sell, distribute or transfer Products and Parts in the Territory; and

6. To export Products and Parts subject to Article 20 hereof."

"Article 5. Personal instruction and training in Japan or at the Factory carried out by Yamaha for the Licensee’s personnel in order to make them understand or become familiar with the Technical Information will be provided or made pursuant to the Technical Service Schedule attracted hereto as Exhibit C."

"Article 6. Subject to the terms and condition contained herein and Trademark Users Agreement between the parties hereto (hereinafter referred to as "TMUA"), the Licensee may use the Trademarks on a nonexclusive basis, for the purpose of doing the activities specified in above paragraph 2.1, on and in connection with Products and Parts which are manufactured and assembled under this Agreement and which attain the quality standard prescribed by Yamaha."

The commission held that the fee was paid for advise consultancy and Technical assistance regarding manufacture of Yamaha motorcycles. According to him since the contract involved providing for technical know-how, technical information, Personnel instructions and training it would be covered under heading of consulting Engineer.

The appellant contended that Japanese company was not rendering service as a consulting engineer, it merely transferred the asset. The definition of royalty from various books were given to explain their case and reliance was placed on the following decision

Navinon Ltd. vs. CCE 172 ELT 400

Bajaj Auto Ltd. vs. CCE 179 ELT 481

Avait Chemicals Pvt. Ltd. vs. CCE 170 ELT 466.

The tribunal observed that a perusal of the agreement brings out the character, content and consideration for the relationship. The recital reproduced above brings out that the Japanese company owns technical information, trade marks and other intellectual property rights such as design, patent and utility models relating to motorcycle and parts and that the Indian company is desirous of acquiring such knowledge, patent, design, trade mark owned by that Japanese company. Clauses 9, 10 and 11 also clearly show that the Agreement was for licensing the transfer of intellectual property rights. Article 2 relating to grant of licence makes it clear that what is being done is the grant of exclusive non-transferable and indivisible licence. The teaching service part covered by Article 5 speaks of personnel instructions and training carried out by the personnel of the foreign collaborator "in order to make them understand or become familiar with technical information". Thus, the teaching element also forms part of transfer of know-how. Articles 7 relating to payment also mention the consideration for the payment as "Technical Information and Intellectual Property Rights and Trademarks to be used in connection with products and parts." Thus, the consideration is not for any consultancy service rendered. It is for the transfer of intellectual property. The relationship between the parties is not one of consultant and client; but seller and buyer of assets. The appellants appeal was allowed.

Yamaha Motors (I) Pvt. Ltd. vs. CCE [186 ELT 161 (TRI-Delhi)]

Customs Act

9. Whether department can take inconsistent stand, one at the time of show cause notice and other before the Tribunal

Held : No.

A notification was issued on 19th June, 1980 by which an exemption was granted under section 25(1) of the Customs Act, 1962 of custom duty in excess of 25% ad valorem payable in the respect of import of various items designed for use in the printing industry. Among the items specified in the table to the notification, serial no.1 refers to Web fed High Speed Letter press Rotary and Web fed off set Rotary printing machines having 30,000 or more copies per hour.

The appellant had imported 3 printing from Sweden during 1986-87, each of which had an output of more than 30,000 copies per hour. A show cause notice was issued alleging that machines imported have capacity of 25,000 copies per hour on the base of a British printing magazine. It was further alleged that supplier’s catalogues submitted were manipulated and were the benefit of notification cannot be granted.

The appellant pleaded that they had tested the machine in Sweden and a certificate of its capacity was obtained before importing. They offered to demonstrate the machine before the customs authorities the performance of the machine. They also produced certificates from two independent technical experts that the machine capacity was 36,000 copies per hour. One of the experts was professor IIT Department of Electrical Engineering Madras.

The commissioner rejected the appeal.

The hon'ble tribunal held that "What was important was not the capacity of the machines but actual output of the machine. They further held that since the appellant has not discharged his burden of claiming the exemption by proving the actual output of imported machines the appeal was dismissed.

Before the court, the collector was directed to personally inspect the machine and give the opinion. The collector in his report stated, that machines were being inspected 15 years after they are imported. One of the machine was not in use when connected it produced 27000 copies and after 15 minutes the machine seized. The second machine gave 30000 copies per hour and needed charge of reel in 25 minutes.

The court held that revenue authorities have taken an inconsistent stand. The commissioner has proceeded on the basis of capacity of the imported machines and not their actual production. The show cause notice was also issued on this basis. The tribunal on the other hand categorically rejected the "Capacity test" and held that capacity test was irrelevant. The court thus on this short ground allowed the appeal of the appellant dealer.

Daily Thanthi vs. CCE Chennai [186 ELT 268 (S.C)]

Central Excise Act

10. Whether delay condonation can be done without supporting affidavit being attested and dated

Held : No

Whether above rectification of defect can be done at anytime, even after a delay of two years

Held : No

The department filed a delayed appeal seeking condonation of delay of 96 days. The appeal was against the order of the CEGAT, which they allege to receive on 15th May, 2002. The appeal before the court was to be filed within six months. The appeal was filed on 17th December, 2002.

The registry raised the objection stating that there was no date and attestation on the affidavit for the delay condonation. The defect was rectified on 12th January, 2005.

The reasons given for delay in filing appeal were "that there were frequent transfers of officers dealing with the matter (not necessarily this matter) and the resultant communication gap between counsel and department. It was further compounded by lack of appreciation of the process involved in the review of legal matters".

The court asked for the original records, but photocopies of some files were placed before the court. The perusal of the files gave no indication as to who dealt with the files, who tried to contact the counsel and the reason for communication gap, if any.

The court was very annoyed, they observed "Ordinarily, we would not have taken a serious view of the delay in the refiling but we find this has become a habit with the commissioner and his office seems to be incorrigible. we have had to deal with two other similar cases wherein applications for condonation of delay troop out the same excuse."

They further observed that "If commissioner is not serious about the cases, there is no reason for him to waste everybody’s time including the time of Registry of this court and Judges. Even respondent- litigants
suffer a tremendous amount of inconvenience, apart from expenses for engaging an advocate and contesting the matter."

The condonation delay application of the department appellant in filing appeal u/s 35H of the act was dismissed with cost of Rs 5000/- payable by the department to the respondents for harassment.

CCE-Delhi-II vs. Bluemax Sport Wear. [186 ELT 401(A.P.)]