In the absence of a definition for the word "service" under the service tax law, one generally has to turn to dictionary meanings and other references to comprehend a definition for the same. | |
| Although it would be difficult to give a finite definition to a generalistic word such as service, it could be defined for a particular law. |
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| Advanced Law Lexicon, quoting from the journal International Accounting Business Insurance comes close when it defines service to be "something provided, usually for a fee, that may not be classed as manufacturing or production in any form". The key words here would be "in any form". |
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| The service tax department seems to be taking a diametrically opposite stance by classifying anything that is not manufacturing or production as service and fastening a service tax liability. This was recently tested before the CESTAT, Delhi in the Yamaha Motors (I) Pvt Ltd vs Commissioner of Central Excise case, Delhi 2005 (186) ELT 161. |
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| Yamaha entered into a technical collaboration agreement with Yamaha Motors Co Ltd, Japan, to manufacture YBX model of motorcycles in India. |
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| The operative part of the agreement stated that "Yamaha ( Japan) owns technical information relating to the manufacture and assembly of certain motorcycle parts and components thereof and certain trademarks and other intellectual property rights such as 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". |
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| Yamaha India had to make a royalty payment for acquiring all of the above for manufacturing motorcycles. Scenting a goldmine, the service tax department demanded their pound of flesh of Rs 58 lakh labelling Yamaha India as a consulting engineer. Yamaha India, paid, under protest and appealed to the CESTAT, Delhi. |
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| Yamaha argued that the agreement in effect was for transfer of assets and no consulting was involved. Yamaha Japan was not rendering service as a consulting engineer but was merely passing on existing assets. |
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| The definition of consulting makes it clear that a client and consultant relationship between the parties is the essence. Even if there was an element of advice involved in an agreement, the agreement could not be cut apart and parts of it taxed. |
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| The department argued that advise and technical assistance were at the heart of consulting and the present agreement involved this. Judicial help to the department came in the form of Transweigh ( India) Ltd. Vs Commissioner of Central Excise, Mumbai ,2004 (170) ELT 527. |
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| The tribunal stuck to the basics by dissecting the agreement threadbare since it felt that a perusal of the agreement brings out the character, content and consideration for the relationship. |
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| The agreement showed that Yamaha Japan owns the technical information, trademarks and other intellectual property rights such as design, patent and utility models relating to motorcycle and parts. |
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| Clauses of the agreement were clear that the agreement was for licensing the transfer of intellectual property rights. The teaching element in the agreement also formed a part of the technical know-how. |
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| The crucial clause regarding payment also mentions that the consideration was for technical information and intellectual property rights and trademarks to be used in connection with products and parts. |
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| The consideration was therefore not for consultancy but for transfer of intellectual property. The tribunal looked at the definition of "royalty" as dictated by the Supreme Court in State of Orissa vs Titagarh Paper Mills Co Ltd case, 1985 Supp SCC 280. |
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| Having determined that the payment was in the nature of royalty, settling the dispute was child's play for the CESTAT in view of the decision of the Mumbai Tribunal in Navinon Ltd vs Commissioner of Central Excise case, Mumbai-VI 2004 (172) ELT 400, wherein it was held that royalty payment does not attract the service tax. |
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| This reasoning was further validated in Bajaj Auto Ltd vs Commissioner of Central Excise case, Aurangabad 2005 (179) ELT 481, as also the Aviat Chemicals Pvt Ltd vs Commissioner of Central Excise, Mumbai 2004 (170) ELT 466. |
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| Since the government is keen on not passing a separate law for the service tax and the Goods and Service Tax Act is on the drawing board still is not it time to define service under Finance Act, 1994? |
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