ST/87589 & 87590/2013, by which the CESTAT has allowed the said appeals preferred by the respondent – M/s Suzlon Energy Limited (hereinafter referred to as the ‘respondent’) and has held that “Engineering Design & Drawings” of various models imported by the respondent for the purpose of manufacturing of Wind Turbine Generator (for short, ‘WTG’) are not leviable to service tax under the category of “Design Services” as defined under Section 65(35b) read with Section 65(105)(zzzzd) of the Finance Act, 1994 during the period June, 2007 to September, 2010, the Revenue has preferred the present appeals.
Also Read: https://newslaw.in/case-type/civil/c-a-no-001144-001146-2011/
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. 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 service tax to the tune of Rs.18,42,99,652/- on the value of taxable services provided by it under the provisions of Section 73 of Chapter V of the Finance Act and cess under Section 85 of Chapter VI of the Finance Act be not demanded.
6 Aggrieved by the Order-in-original passed by the Commissioner confirming the demands of service tax and also levying the interest and penalty, the respondent filed appeals before the CESTAT. 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 a set of tailor made drawings and designs or readymade drawings and designs would constitute a distinct clause when compared to preparation of drawings and designs under a contract of service for a specific customer to suit his specifications.
This would be an incorrect approach since the expression goods had not been altered by the 46 amendment and the ingredients of sale continues to have the same definition; c) However, this does not mean that the content of the concepts remain static, and the Courts must move with times; d) It proceeded to hold that Article 366(29A) does not seek to cover hospital services, lawyer services and other professional services, where during the course of rendering such services, there may be a transfer of goods; e) Treatment of a patient in a hospital and administration of pills in the course of a treatment would not tantamount to sale; f) When a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client, strictly speaking, with a payment of fees, consideration does not pass from the patient or client to the doctor or lawyer for the documents in both the cases; g) 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.
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 goods: i) If a contracting parties A and B agree to purchase of a huge boiler for erection, installation and commission in a factory, the intention of the contracting parties would envisage the sale of a boiler as goods and a rendition of erection, installation and commissioning as services.
Also Read: https://newslaw.in/case-type/civil/acquisition-of-land-and-deemed-lapse-under-the-act-2013/
Even though it involves both goods (stends) and services (medical services/hospital services), the contracting parties, namely, the patient and the hospital, do not intend to buy and sell a stent and also a rendition of medical services as 2 items of sale and service. 2 It is submitted that the first question is, whether supply of goods as per specifications given by the customer is a contract of sale of goods or merely a contract for work on labour. (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 be treated as goods under the natural definition of goods. (supra) and held that intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes and marketed would become “goods.” 6 It is further submitted that the intent of service tax legislation is not to levy service tax on sale of goods.
For instance, in a catering contract, supply of food was subject to value added tax and the service aspect was subject to service tax. 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.
Relevant clauses of the agreement, more particularly which defined the ‘product’ read as under: 1.10.1 ‘Design and Development’ of all models of rated capacity geared WTG together with all related and pertinent components and therein required; 1.10.2 ‘Design and Development’ of ‘Suzlon Flexislip System’ together with all related and pertinent components and therein required; 1.10.3 All and any products that is developed by M/s SEG conceived (whether or not actually conceived during regular business hours), discovered, or made by M/s SEG and its agents and employees during the course of performing its obligations under the Agreement; 1.10.4 Documentation including material and documents containing studies planning activities, manufacturing process details in respect of above. At this stage, it is required to be noted that the said designs were to be exclusively used by the respondent in the territory of India and it was a tailormade design. 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’. Even otherwise, as observed by this Court in the case of BSNL (supra), there is a distinction between the sale of goods and a contract of service.
However, at the same time, as other grounds raised before the CESTAT, namely, “whether the services (if any) rendered by a foreign entity will or will not fall within the purview of “design services” and invocation of extended period of limitation have not been considered by the CESTAT and therefore learned counsel for the respondent is justified in praying to remand the matter to CESTAT to decide the aforesaid two grounds.
Also Read: https://newslaw.in/case-type/civil/c-a-no-003481-003481-2022/
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. SHAH] NEW DELHI;………………………………J.
Case Title: COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX Vs. M/S SUZLON ENERGY LTD. (2023 INSC 332)
Case Number: C.A. No.-011400-011401 / 2018
