TAXABILITY OF DESIGNING SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on Design Services by the Finance Act, 2007 as a separate taxable service with effect from a 1st June, 2007 videNotification No. 23/2007-ST dated 22.05.2007. The gross amount charged by or gross consideration received by any person being service provider from any other person in relation to design services shall be chargeable to service tax. 

Meaning of Design Services [Section 65(36b)]

"design services" includes services provided in relation to designing of furniture, consumer products, industrial products, packages, logos, graphics, websites and corporate identity designing and production of three dimensional models.

Design means only the features of shape, configuration, pattern or ornament applied to any article by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the financial article appeal to and are judged solely by the eye; but does not include any mode or principle of construction or anything which is in substance a mere mechanical, and does not include any trade mark as defined in clause (v) of sub-section (1) of section 2 of the Trade and Merchandise Marks Act, 1958, or property mark as defined in Section 479 of the Indian Penal Code [Designs Act, 1911]

The word 'design' in popular parlance is used as a synonym with 'plan' and includes 'a sketch'. It has within its ambit many facets including a criminal design which connotes an evil desire. Commissioner of Customs, New Delhi v. Parasrampuria Synthetics Ltd. [2008 -TMI - 45965 - SUPREME COURT OF INDIA].

Logo means a brand name, publication title, or the like, presented in a special lettering style or typeface and used in the manner of a trade mark. It is a trademark or symbol used in the manner of a trade mark (P. Ramanatha Aiyars Advanced Law Lexicon).

Graphics means diagrams that are produced on the screen and can be saved on a file and also printed. Computer graphics means illustrations created with the aid of a computer.

Corporate entity means identity of a company as displayed in the visual images it uses, for example, its logos and colours, in such things as packaging, uniforms, stationery and vehicles (P. Ramanatha Aiyar's Advanced Law Lexicon).

The definition provides an inclusive definition but what is meant by design or designing has not been defined. Design has been defined to include the activity of design in relation to certain articles or things etc. and the act of designing shall be construed accordingly. It appears that definition is wide but inclusive. The designing should be in relation to the following articles only-

(i)  Furniture (fixtures not covered)

(ii) Consumer products (all)

(iii) Industrial products (all)

(iv) Packages (all types of packages - labels, bottles, pouch, imprinting etc.)

(v)  Logos (marks, designs, trade marks, logos, emblems etc.)

(vi) Graphics (any type of graphic designing)

(vii)  Websites (only designing, not content provisioning)

(viii) Corporate identity designing (corporate advertisement designing, corporate image designing, colour scheme etc.)

(ix)  Production of three dimension models (excluding digital films)

Only the act of designing in relation to above shall be covered in the scope and that designing of the aforesaid only shall be covered.  

Taxable Service

Taxable service has been defined in Section 65(105)(zzzzd) as under -

"Taxable service means any service provided or to be provided to any person, by any other person in relation to design services, but does not include service provided by -

(i)   an interior decorator referred to in sub-clause (q); and

(ii)  a fashion designer in relation to fashion designing referred to in sub-clause (zv)." 

Thus, for taxability of designing services, following basic tests must be satisfied-

(a)   service should be provided or to be provided by any person to any other person (i.e., both can be any person)

(b)   service should be in relation to design services

(c)   design must relate to specified items in the definition

(d)   service provider should not be a fashion designer or an interior decorator

The definition under section 65(36b) does not use the words, 'such as' or 'like or etc.' which imply that the scope of the definition is inclusive only and any other kind of designing falling out of the four walls of the scope of definition shall not be covered. For example, industrial or consumer products are covered. That implies agricultural products are excluded. Designing of furniture is covered but designing of any other movable asset like fixtures, plants & machinery, equipments etc are not intended to be covered.

However, CBEC has videCircular No. 334/1/2007-TRU dated 28.2.2007 clarified as under -

"Design Services[section 65(105)(zzzzd)]: Services in relation to conceptualizing, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings are leviable to service tax under fashion designing service [section 65(105)(zv)] and services in relation to planning, design or beautification of spaces is leviable to service tax under interior decorator's service  [section 65(105)(q)]. Design services, other than the above specifically mentioned taxable services, like furniture design, aesthetic design, consumer or industrial products, logos, packaging, production of three dimensional models, etc. will be taxable under this category."

Person Liable

Any person other than fashion designer or an interior decorator providing designing services to the customer or client shall be the person liable to pay service tax.