Case Note & Summary
The case involves an appeal by the Revenue against the CESTAT order which held that 'Engineering Design & Drawings' imported by M/s Suzlon Energy Limited for manufacturing Wind Turbine Generators (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 respondent, a manufacturer of WTG, had entered into a product development and purchase agreement with its German subsidiary for exclusive use in India. It imported the designs by filing Bills of Entry, classifying them as 'Paper' under customs tariff and claiming nil customs duty, contending that the designs were 'goods' and not 'services', hence not liable to service tax. During audit, it was found that the respondent had not paid service tax on these designs. A show cause notice dated 15.12.2001 was issued demanding service tax of Rs.18,42,99,652/- along with interest and penalty. The adjudicating authority confirmed the demand, but the CESTAT allowed the respondent's appeal, holding that the designs were not taxable as design services. The Supreme Court, in the present appeal by the Revenue, examined the definitions under the Finance Act and held that the engineering designs and drawings clearly fall within the ambit of 'design services' and are taxable. The Court noted that the classification under customs law does not determine the nature of the transaction for service tax purposes. The Court set aside the CESTAT order and restored the demand of service tax, interest, and penalty as per the show cause notice.
Headnote
A) Service Tax - Design Services - Taxability of Engineering Design & Drawings - Sections 65(35b), 65(105)(zzzzd), Finance Act, 1994 - The issue was whether imported engineering designs and drawings used for manufacturing wind turbine generators constitute 'design services' liable to service tax. The Supreme Court held that such designs fall within the definition of 'design services' and are taxable, reversing the CESTAT's decision that they were not leviable to service tax. (Paras 1-21) B) Customs Law - Classification of Designs - Goods vs Services - The respondent classified the imported designs as 'paper' under customs tariff and claimed nil duty, arguing they were goods. The Court held that the classification for customs purposes does not determine taxability under service tax law; the substance of the transaction as a service is relevant. (Paras 2-5) C) Service Tax - Show Cause Notice - Demand of Tax - Sections 73, 75, 76, Finance Act, 1994 - The Revenue issued a show cause notice demanding service tax of Rs.18,42,99,652/- along with interest and penalty for non-payment of service tax on design services. The Supreme Court allowed the appeal, setting aside the CESTAT order and restoring the demand. (Paras 2-21)
Issue of Consideration
Whether 'Engineering Design & Drawings' imported by the respondent for manufacturing Wind Turbine Generators are 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.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned judgment and order dated 02.05.2018 passed by the CESTAT, and restored the demand of service tax, interest, and penalty as per the show cause notice dated 15.12.2001.
Law Points
- Service tax
- Design services
- Engineering design and drawings
- Finance Act 1994
- Section 65(35b)
- Section 65(105)(zzzzd)
- Import of designs
- Taxability of services
- Customs classification
- Revenue appeal
