Due to relaxations in various laws, which restricted foreigners to have trade relations with entities in India and vice versa, there has been a tremendous growth in technical collaborations, joint ventures, licenses, and other tie-ups by Indian companies with foreign companies. The restrictions on making of payments in foreign change have been made removed considerably and approvals are now "automatic" under various guidelines of the Reserve Bank of India. Such tie-ups are in various forms. There may be a purely technical knowhow agreement under which the foreign company may transfer or license technical knowhow to the Indian company. There may be technical services agreementunder which such services may be provided. While there may be such stand-alone agreements, typically, technical knowhow is also provided as a part of a total package. For example, the foreign company may take a turnkey contract of setting up a plant in India under which not only technical knowhow and technical services would be provided, but the equipment and components would also be sold. In some cases, use of brands may be permitted.

The payment for all such services may also be in various forms. The payment may be made in a lump sum, paid in a number of instalments and/or the payment may be made as a percentage. The question that has to be examined is whether this type of payments attract the cess.

The cess is levied on payments made by an industrial concern for import of technology under foreign collaboration agreement. The term will be examined in more detail later. The rate of cess is five per cent on the payments made. The amount has to be paid to the government where it could be credited to theventure capital fund. It is stated that such funds collected will be used for providing equity capital or any other form of financial assistance to industrial concerns attempting commercial applications of indigenous technology or adapting imported technology to wider domestic applications.

This fund will be managed by a duly constituted Technology Development Board.The cess has to be paid on all payments made towards the "import of technology". The term "import" has been defined as to mean bringing into India of technology from a place outside India. The term "technology" has been very widely defined. Technology means any special or technical knowledge or any special services required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel. It is in the light of this definition that one has to consider which of the types of arrangements discussed earlier will attract payment of such cess.

While it isdifficult to draw conclusions which will apply to all types of transactions and circumstances, it is possible to make some observations. For example, the cess is payable only by an industrial concern, as defined.

Further, only when the technology is imported, that is brought from a foreign country, that the cess would be levied. In other words, local technical collaborations would not attract such cess, nor would agreements between two non-residents would usually attract liability. However, this does not mean that the payments have to be made in foreign currency.

Payments made in India to foreign technicians would also attract the cess. Further, the payment should be under a foreign collaboration.

Though there are several limitations as pointed out above, otherwise, the scope is very wide. The term technology would include any special or technical knowledge. Further, any special services would also be covered. Import of designs, drawings, obligations and even hiring technical personnel would all becovered.

It will not make any difference whether the payment is made in lump sum or in instalments or as a percentage of sales. However, the cess gets attracted and is payable only when the amount for such technology is actually paid.A stiff penalty has been provided for non-payment of the cess. This penalty can be levied by the Technology Development Board and can extend up to 10 times the amount in default.

The law does not specifically provide as to who shall bear this cess. However, the liability to pay this cess is on the payer. Note further that the five per cent is calculated on the amount paid to the foreign collaborator and not on the gross amount of fees. The payer, unless it has been clearly agreed upon, cannot deduct the cess and pay only the net amount to the foreign collaborator.

In conclusion, persons entering into various types of arrangements with foreign parties should keep this requirement of payment of cess in mind and pay such cess as is due. Even more particularly, the manner inwhich such cess shall be shared between the Indian company and the foreign company.

The author is a Mumbai-based chartered accountant