Finance Act, 1994 – ss.65(35b), 65(105)(zzzzd) – “design services” – Respondent engaged in manufacture of Wind Turbine Generator (WTG), entered into a product development and purchase agreement with its sister concern in Germany for manufacturing WTG in India – Various models of “Engineering Design & Drawings” were imported by the respondent for manufacturing of WTG – If leviable to service tax under the category of “design services” as defined u/s.65(35b) r/w s.65(105)(zzzzd) – Held: Yes – Definition of “design services” is very clear and wide enough to cover all “design services” – Merely because “Engineering Design & Drawings” prepared and supplied by sister company of the respondent were shown as ‘goods’ under the Customs Act and in the bill of entry, that by itself cannot be a ground to take such services out of the definition of “design services” under the 1994 Act – View taken by the CESTAT that the same activity cannot be taxed as goods and services is absolutely erroneous – Impugned judgment and order passed by the CESTAT setting aside the levy of service tax is quashed and set aside – However, matter remitted back to the CESTAT to consider the grounds raised on behalf of the respondent.
Tax/Taxation:
Aspect theory – Application of – Held: There can be two different taxes/levies under different heads by applying the aspect theory – The same activity can be taxed as ‘goods’ and ‘services’ provided the contract is indivisible and on the aspect of services there may be levy of service tax.
Sale of goods and a contract of service – Distinction – Held: There is a distinction between the sale of goods and a contract of service – What is relevant is the intention of the contracting parties. Disposing of the appeals, the Court
HELD: The designs were to be exclusively used by the respondent in the territory of India and it was a tailormade design. The respondent engaged the sister concern M/s SEG for the activity of “Engineering Design & Drawings” used in manufacturing of WTG, that was reduced as blue print on paper and delivered to the respondent on the same medium. Such “designs” were subjected to the service tax even as per the clarification by the Board dated 18.03.2011 on the issue of applicability of indirect taxes on packaged software. Therefore, as such, the respondent was liable to pay service tax on the “design services” received from abroad under reverse charge. M/s SEG was a related unit, i.e. subsidiary of the assessee and the amount received for service by M/s SEG from the assesseerespondent for the said “Engineering design & drawings” services therefore was liable to service tax under reverse charge in terms of the concept of ‘associated enterprise’. Despite this, M/s SEG raised the invoice/bill on the assessee treating it as ‘paper’. However, when the said bill of entry was presented treating the same as ‘paper’ for which the duty payable was ‘Nil’. Therefore, neither any custom duty was paid due to exemption from payment of duty treating it as ‘paper’ nor the service tax was paid. By a detailed judgment and order, the Commissioner held that the respondent was liable to pay the service tax under taxable category ‘“design services”. However, by the impugned judgment and order, the CESTAT has held that the respondent is not liable to pay the service tax under “design services” under the Finance Act, 1994 mainly on the ground that the custom authority considered the same as ‘goods’ and therefore the same activity cannot be taxed as ‘goods’ and ‘services’. The aforesaid view is absolutely erroneous. There can be two different taxes/levies under different heads by applying the aspect theory. The same activity can be taxed as ‘goods’ and ‘services’ provided the contract is indivisible and on the aspect of services there may be levy of service tax. The aforesaid aspect has not at all been considered by the CESTAT while passing the impugned judgment and order. The definition of “design services” is very clear and it is wide enough to cover all “design services.” Merely because “Engineering Design & Drawings” prepared and supplied by sister company were shown as ‘goods’ under the Customs Act and in the bill of entry, by that itself cannot be a ground to take such services out of the definition of “design services” under the Finance Act, 1994. Even otherwise, there is a distinction between the sale of goods and a contract of service. What is relevant is the intention of the contracting parties and whether the contracting parties intend transfer of both goods and services, either separately or in an indivisible manner or in a composite manner. The view taken by the CESTAT that the same activity cannot be taxed as goods and services is absolutely erroneous. The impugned judgment and order passed by the CESTAT setting aside the levy of service tax is unsustainable and the same deserves to be quashed and set aside. [Paras 7-9][335-F-H; 336A-G; 337-A] BSNL v. Union of India (2006) 3 SCC 1 : [2006] 2 SCR 823 – relied on.
Sojitz Corporation v. Commissioner of Service Tax, New Delhi 2009 (14) STR 642 (Tri. Delhi); Hindustan Shipyard Ltd. v. State of A.P. (2000) 6 SCC 579 : [2000]
1 Suppl. SCR 592; Associated Cement Companies Ltd. v. Commissioner of Customs (2001) 4 SCC 593 : [2001]
1 SCR 608; Tata Consultancy Services v. State of A.P. (2005) 1 SCC 308 : [2004] 5 Suppl. SCR 1040 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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