TMI Blog2023 (4) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... sign. 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 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. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment and purchase agreement to be used exclusively for manufacturing of WTG in the territory of India. The products were exclusively defined in para 1.10 of the said agreement. 2.2 The respondent, while importing these designs filed Bill of Entry with the Custom authorities and classified the same as Paper under Chapter Sub-heading No. 49119920 of the Customs Tariff and claimed benefit of Nil rate of customs duty under Notification No. 021/2002 for BCD and Notification No. 020/2006 for CVD. That respondent claimed that since the designs and drawings received by it vis customs route by filing the Bill of Entry were goods and not services , it was not required to pay the service tax. 2.3 During the course of audit, it was noticed that the respondent had not paid service tax on Engineering Design Drawings of various models, used in the manufacturing of WTG, which was classifiable under the category of Design Services for the period from June, 2007 to September, 2010. 2.4 The appellant herein Commissioner of Customs, Central Excise and Service Tax, Pune issued a show cause notice dated 15.12.2001 to the respondent calling upon it to show cause as to why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Design Services as defined under section 65(35b) r/w section 65(105)(zzzzd) of the Finance Act, 1994 during the period June, 2007 to September, 2010? 3.1 Shri N. Venkataraman, learned ASG has submitted that the contentions of the respondent that any intellectual property put in a media at all times would only get classified as goods and never as services may not be the correct statement of law. It is submitted that merely because the intellectual property put in a media, it would not per se make them goods. It would depend on whether the contracting parties have understood it as a transfer or a sale of goods. It is submitted that importation of a set of tailor made or readymade drawings will constitute a sale of goods, whereas if a person engages a painter to draw a picture of his choice and to his specifications and the delivery of the painting, even though on a canvas duly framed, may only constitute to a service, since the painter has engaged his entire intellectual effort in drawing the painting for a particular customer and to his specifications and as he progresses with the painting, the same is for a specific customer. 3.2 It is submitted that this can also ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service and impose tax on sale; i) The test, therefore, for service contracts, other than the two contracts falling under Article 366(29A), would be did the parties have in mine or intend separate rights arising out of the sale of goods? If there was no such intention, there is no sale even if the contract could be disintegrated. ; and j) The test for deciding whether a contract falls into one category or another is, as what is the substance of the contract otherwise called, the dominant nature test. 3.4 It is submitted that therefore what is required to be considered is, did the contracting parties intend transfer of both goods and services, either separately or in an indivisible manner or in a composite manner. 3.5 Shri N. Venkataraman, learned ASG has also submitted the following illustrations in support of his submission that the Engineering Design Drawings of various models imported by the respondent for the purpose of manufacture of WTG are leviable to service tax and cannot be taxed as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls the end product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. 4.3 Learned senior counsel appearing on behalf of the respondent has heavily relied upon the decision of this Court in the case of Associated Cement Companies Ltd. v. Commissioner of Customs, reported in (2001) 4 SCC 593. It is submitted that in the said decision, this Court has held that any media which contain drawings or designs would be regarded as goods under the provisions of the Customs Act. It is observed that these items are movable goods and would be covered by Section 2(22)(e) of the Customs Act. It is observed and held that the fact that the technology or ideas is tailormade would not make any difference. 4.4 It is submitted by Shri V. Sridharan, learned senior counsel appearing on behalf of the respondent that it may be true that the decision of this Court in the case of Associated Cement Companies Ltd. (supra) may not be an authority for the proposition that service tax cannot be levied on pure sale of goods, the said decision is certainly an authority for the proposition that designs on a medium will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STAT has not dealt with those contentions and therefore it is prayed that the matter may be remanded to the CESTAT to decide all these questions. 5. We have heard learned counsel for the respective parties at length. The issue to be decided in the present appeals is whether activity of import of Engineering Design Drawings from the sister companies by the notice during the period under dispute i.e., June, 2007 to September, 2010 is classifiable under taxable category design services under section 65(35b) read with Section 65(105) (zzzzd) of the Finance Act, 1994 . 5.1 While considering the aforesaid issue, the definition of design services under the Finance Act, 1994, as it stood during the impugned period, is required to be considered, which reads as under: SECTION 65. Definitions. -In this chapter, unless the context otherwise requires, . (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: . (105) (zzzzd) taxable service means any service p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard 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. It was also found that 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 assessee-respondent for the said Engineering design drawings services therefore was liable to service tax under reverse charge in terms of the concept of associated enterprise . 8. Despite the above, 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in praying to remand the matter to CESTAT to decide the aforesaid two grounds. 10. In view of the above and for the reasons stated above, the impugned judgment and order passed by the CESTAT holding that the respondent is not liable to pay service tax as design services on importing various models of Engineering Design Drawings for the purpose of manufacturing of Wind Turbine Generator (WTG), as defined under Section 65(35b) r/w section 65(105)(zzzzd) of the Finance Act, 1994 is hereby quashed and set aside. However, the matter is remitted back to the CESTAT to consider the grounds raised on behalf of the respondent, namely, whether the services (if any) rendered by a foreign entity will not fall within the purview of design services and that the department was not justified in invoking the extended period of limitation. It is made clear that the matter is remitted back to CESTAT to consider the aforesaid two grounds and none other. Insofar as the issue of levy of service tax on the Engineering Design Drawings is concerned, the same is decided in favour of the revenue and against the assessee. 11. The instant appeals stand disposed of in terms of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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