R & D Cess on Import of Technical Know-How

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This query is : Resolved

Priyank (Querist)

08 February 2011 Dear sir,

Our company is importing technical know-how from Germany.
1. Do the company need to pay R&D Cess @ 5% on import of technical know-how? Are there any exemptions from this levy?
2. As per my understanding Cenvat credit of Service tax paid (@ 5.30%) can be taken. But is it anyway possible to take Cenvat credit / Refund of the R & D Cess paid? Please provide procedure to claim the same

Please provide copy of the R&D Cess Rule, if possible.

VIPIN KUTUMBALE

VIPIN KUTUMBALE (Expert)

09 February 2011
DEAR PRIYANK, please search for R&D Cess. in google.com, its called Abatement R & D Cess of, can be taken in calculation of Service tax on import of services.

Priyank

Priyank (Querist)

09 February 2011 Dear Vipin sir,

Thanks for your reply. I could not find any relevant material or case law for R&D Cess on Google.

My query is that, is the company paying R & D Cess can claim CENVAT credit for R & D Cess paid against its Excise / Service Tax Liability?

Further, the transaction is one off transaction. The compnay is importing technical know-how for manufacturing of 3 kinds of products. There are no other arrangements between the companies. Does the transaction still falls within the term "Foreign Collaboration"?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

19 July 2025 1. Applicability of R&D Cess @ 5% on Import of Technical Know-How
R&D Cess was introduced under the Cess Act, 1986 to fund Research & Development activities.
It applies @5% on import of technology or technical know-how.
Whether the import of technical know-how attracts R&D Cess depends on:
If the import is classified as “foreign technology collaboration” or technical know-how transfer under Customs or Central Excise rules.
Generally, R&D Cess applies on royalty or lump sum fees for technical know-how imported.
Exemptions: Some categories may be exempt based on notifications issued by the government or if covered under double taxation avoidance agreements.
2. CENVAT Credit / Refund of R&D Cess paid
CENVAT Credit is allowed only on Service Tax and Excise Duty, but R&D Cess is not service tax or excise duty, it is a separate cess.
As per the R&D Cess Rules, CENVAT credit of R&D Cess is generally not allowed.
R&D Cess paid is not eligible for refund under normal CENVAT credit rules.
However, since Service Tax @5.30% (including education cess) on the import of technical know-how can be credited as CENVAT credit if the technical know-how service is used in the course of business.
3. Is this transaction “Foreign Collaboration”?
Foreign collaboration generally means arrangement where the foreign party provides technology, technical know-how, or technical assistance.
Even if the transaction is one-off, import of technical know-how falls under foreign collaboration, if it involves transfer of technology or rights.
This classification is important because R&D Cess and other duties are linked to foreign collaboration agreements.
4. Procedure / Rules to refer
The R&D Cess Act, 1986 and R&D Cess Rules, 1988 govern the levy and collection of R&D Cess.
For details on R&D Cess and its applicability, you can check:
Central Excise Rules under Service Tax laws for import of services.
Customs notifications for imports of technical know-how.
Unfortunately, R&D Cess Rules are not commonly published online officially, but summaries are available in tax handbooks or can be obtained from the Central Excise department.

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