1. The Appellant M/s Yamaha Motors (India) Pvt. Limited signed a "Technical Collaboration Agreement" on 25th March 1996 with M/s Yamaha Motors Co. Limited, Japan. The collaboration was for the manufacture of YBX model motor cycles in India. The recital mentions what the Indian company wanted to acquire:- "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.
The technical Information, Intellectual Property Rights, and Trade Mark sought to be transferred under the agreement find mention in paras 1.9, 1.10 and 1.11 of the agreement as under:- "1.9 "Technical Information" shall mean only the technical information contained in documents described below of which details are described in Exhibit C attached hereto, and which may contain "Intellectual property Rights" (as hereinafter defined). Technical Information shall be limited to that information and know-how owned or controlled by yamaha as on the date of execution of this Agreement, which yamaha has a right to license or disclose within the Territory as on the date of execution of this Agreement.
c) Yamaha Design Standards (YGK) and Yamaha Quality Standards ("YQS"), cited in the Drawings; d) Revised information of the materials set forth in paragraphs (a) through (c) above.
f) process Standards which specify and give technical explanation of the basic manufacturing methods and process required for the manufacture of Locally Manufactured Parts for Motorcycles." "1.10 "Intellectual Property Rights" shall mean any patents, utility models, designs and applications therefore relating to the Motorcycles or parts owned or controlled by Yamaha as on the date of execution of this Agreement".
"1.11 "Trademarks" shall mean the trademarks listed in Exhibit D attracted hereto".
Article 2 of the Agreement relating to grant of license reads as under:- "2.1 Subject to the terms and conditions herein contained, Yamaha hereby grants to the Licensee on exclusive, non-transferable and indivisible license, without any right to sub-license to any person, to use Technical Information for the purpose of doing the following within the Territory during the term of this Agreement.
a) To manufacture or process locally manufactured Parts at the Factory; b) 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; c) To procure Locally Procured Parts and to Import Other Imported Parts approved by Yamaha in accordance with Articles 10 and 13 hereof; e) To sell, distribute or transfer Products and Parts in the Territory; and Article 5 relating to Technical Service and Article 6 relating to Trade Mark used are also reproduced hereunder:- "Article 5 Personal instruction and training in Japan or the Factory carried out by yamaha for the Liensee's personal 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 conditions contained herein and Trademark Users Agreement between the parties hereto (hereinafter referred to as "TMUA"), the Licensee may use the Trademarks on a non-exclusive 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".
2. Under the impugned order it has been held that the Agreement between the parties comes in the category of consulting service and attracted service Tax payable by a "Consulting Engineer". Based on that finding, the appellant's claim for refund of over Rs. 58 lakhs, which had been paid under protest, has been denied. The present appeal challenges that order.
3. The finding of the Commissioner is that fee was paid for advise, Consultancy and Technical Assistance regarding manufacture of Yamaha Motorcycles. The Commissioner has also noted that since the agreement provided for Technical know-how, Technical Information, Personnel instructions and Training, the contract involved service of a Consulting Engineer.
4. We have perused record and heard learned Senior Consul Shri Joseph Vellapally for the appellant and the learned SDR for the Revenue.
5. Learned Senior Counsel has taken us through the various provisions in the Technical Collaboration Agreement between the parties and has pointed out that the terms would clearly show that what is involved is a mere transfer of assets and no consulting is involved. He also pointed out that the Japanese company was not rendering service as a Consulting Engineer. It was merely passing on existing assets. It is his contention that definition of consulting makes it clear that a client and consultant relationship between the parties is the essence of the relationship in a consultancy while Technical Collaboration is a different (Partnership) relationship, altogether. He also pointed out that even if there is an element of advice involved in a Technical Collaboration Agreement, it is well settled, that an agreement is not to be cut into various parts and parts taxed.
6. It is the contention of the learned SDR that advise and technical assistance are at the heard of consulting and the present agreement involved this. According to the learned SDR, the Commissioner was right in holding the service as a Consulting engineer service. She has also relied on the decision of the Tribunal in the case of Transweigh (India) Ltd. v. CCE, Mumbai-2004(170) ELT 527 in support of the contention that where a manufacturing company engages in consulting service, that service is liable to be subjected to service tax.
7. In the present case, the issue for consideration is whether the exchange between the parties, in terms of the Technical Collaboration Agreement, was providing consulting engineering service and payment for it or exchange of intangible property. 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 license makes it clear that what is being done is the grant of an exclusive non-transferable and indivisible license. The teaching service part covered by Article 5 speaks of personnel instruction and training carried out by the personnel of the foreign collaborator "in order to make them understand or become familiar with the technical information". Thus, the teaching element also forms part of transfer of know-how. Article 7 relating to payment also mentions the consideration for the payment as "Technical Information and Intellectual Property Rights and Trade Marks 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.
8. During the hearing, the appellant has produced various definitions of royalty in various texts. Wharton's law lexicon defines it as "payment to a patentee by agreement on every article made according to Agreement". Block's Law dictionary defines it to be "a payment reserved by the grantor of a patent ... and payable proportionately to the use made of the right by the grantee' It also refers to it as "a payment made to an inventer in respect of each article sold under the patent".
The Concise Oxford Dictionary defined it as "a sum paid to the patentee for the use of a patent".State of Orissa v.Titaghur Paper Mills Co. Ltd., "Royalty' is not a term used in legal parlance for the price of goods sold. 'Royalty' is defined in Jowitt's Dictionary of English Law, Fifty Edition, Volume 2 page 1595 as follows.
"Royalty, a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee. It is usually a payment of money, but may be a payment in kind, that is, of part of the produce of the exercise of the right.
Royalty also means a payment which is made to an author or composer by a publisher in respect of each copy of his work which is sold, or to an inventor in respect of each article sold under the payment".
In Navinon Ltd. v. CCE, Mumbai-VI - 2004 (172) ELT 400 this Tribunal held that royalty payment does not attract service tax as consulting engineer with the following observation:- "The amounts, which the appellants have to remit to M/s Ciba Geigy Ltd., Switzerland, are mentioned in the agreement under the heading "Royalty". Payments of royalty in the common parlance are not insisted as payment for a service provided. It is understood as a share of product or profit reserved by owned for permitting another the use of his property. Royalty payments in the present case for the use of technology and know-how cannot be equated with any services to be provided by M/s Ciba Geigy Ltd., to the appellants and therefore, the order of the lower authorities attracting a levy of tax on royalty payments made are required to be set aside".Bajaj Auto Limited v. CC, Aurangabad - 2005 (1979) ELT 481 this Tribunal held that royalty for right to use trade mark is a transaction in property and no consultancy or advice is involved, and same is not liable to service tax. To the same effect is the decision of this Tribunal in the case of Aviat Chemicals Pvt. Ltd. v. CCE (Service Tax) Mumbai-2004 (170) ELT 466. The decision of this Tribunal in the case of Trans Weight (india) Ltd., which has been relied upon by the Revenue, is also not of any assistance to the Revenue inasmuch as, in that case, the appellant who was a manufacturer of machinery was also rendering technical services towards installation, erection etc.
of the machine and amounts were being charged for that service. It is in that factual situation that the Tribunal held that the consultancy service rendered attracted service tax. This judgment only supports the proposition that, if a manufacturer undertakes consultancy in addition to manufacture, it will be liable to tax in regard to the service rendered. It has no application to where the agreement is, as in the present case, for transfer of intellectual property and no consultancy service is rendered. Further, the value of incidental advice, if any, cannot be cut out and subjected to service tax.
10. In the view we have taken above, the impugned order is set aside and the appeal is allowed.