Skoda's Technical Know-How Licence To Indian Unit Not Consulting Engineer Service: CESTAT Mumbai

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate tribunal (CESTAT) has held that Skoda Auto Volkswagen India Pvt. Ltd.'s licence to use technical know-how, technical documentation, and trademarks from its Czech parent company did not amount to a "Consulting Engineer Service" under the Finance Act, 1994.

The bench observed that the arrangement was merely a licence to use pre-existing intellectual property and not a contract for engineering advice or consultancy.

Judicial Member Ajay Sharma and Technical Member Rajeev Tandon observed, "The mere fact that a manufacturer possesses and licences engineering know-how does not transform it into a consulting engineer. Skoda Czech was not retained or approached by the Appellant to provide any engineering advice, consultation, or technical assistance. They simply licensed access to its already-developed technical knowledge base."

The bench also ruled that no service tax could be recovered from the Indian company under the reverse charge mechanism for services received from abroad before Section 66A came into force on April 18, 2006. It consequently set aside the service tax demand of ₹2.31 crore, along with interest and penalties.

The dispute arose from an agreement under which Skoda Auto A.S., Czech Republic, granted the Indian company a non-exclusive right to use its pre-existing technical know-how, technical documentation, and the "Skoda" trademark.

The rights enabled it to manufacture, assemble and sell passenger cars and related components in India. The Revenue treated the arrangement as a "Consulting Engineer Service" and sought to recover service tax from the Indian company under the reverse charge mechanism for the period between 2001-02 and 2003-04.

Rejecting the revenue's stand, the bench found that Skoda Czech had merely licensed technology and intellectual property it had already developed. It was not engaged to solve any engineering problem or provide technical advice tailored to the Indian company's requirements.

The bench observed that the nature of the transaction had to be determined by its substance. Although the subject matter involved engineering technology, what was transferred was the right to use pre-existing know-how and trademarks, rather than the rendering of a consulting engineering service.

The bench also found that the adjudicating authority had travelled beyond the show cause notice by relying on Rule 2(d) of the Service Tax Rules, 1994, even though the provision had not been invoked in the notice.

It further held that Rule 6 did not apply because there was no material to show the Indian company had been authorised by the foreign company to pay service tax on its behalf.

Relying on Indian National Shipowners' Association, Laghu Udyog Bharati and Bajaj Auto Ltd., the bench allowed the appeal granting relief to Skoda India. 

For Appellant: Advocates Anay Banhatti, Deepshe Kagra,

For Respondent: Manish Mohan, Commissioner (Authorised Representative).