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Commissioner of Customs, Central Excise & Service Tax Vs. Suzlon Energy Ltd. - (Supreme Court) (10 Apr 2023)

Same activity can be taxed as ‘goods’ and ‘services’ provided contract is indivisible


Service Tax

The Revenue has preferred the present appeals feeling aggrieved with the impugned judgment and order passed by the CESTAT, by which the CESTAT has held that "Engineering Design & Drawings" of various models imported by the Respondent for the purpose of manufacturing of Wind Turbine Generator ('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.

In the present case, the Respondent was engaged in manufacture of Wind Turbine Generator (WTG). It entered into 'product development and purchase agreement' with three of its sister companies.

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 tailor-made design. The Respondent engaged the sister concern 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, the Respondent was liable to pay service tax on the "design services" received from abroad under reverse charge. It was also found that SEG was a related unit, i.e., subsidiary of the Assessee and the amount received for service by 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'.

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".

As observed and held by this Court in the case of BSNL vs. Union of India, there can be two different taxes/levies under different heads by applying the aspect theory. As per the settled position of law now, 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.

The impugned judgment and order passed by the CESTAT is quashed and set aside. However, the matter is remitted back to the CESTAT to consider the grounds raised on behalf of the Respondent. 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. Appeals disposed of.


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