Consulting engineering and imported services tax limits clarified: goods-assessed drawings escape levy, and pre-Section 66A foreign services were not taxable.

Imported and indigenous designs and drawings, having been separately assessed as goods under the customs and excise tariff, could not be recharacterised and taxed again as consulting engineering service; the service tax demand on that value was therefore unsustainable. Services rendered by a foreign provider in India during the period before insertion of Section 66A could not be taxed under the then existing service tax law, because a rule could not create the charging provision in the absence of statutory authority. The project office or liaison office did not alter that position. The impugned service tax demand and penalty were set aside, with consequential relief.

---

---

Issues: (i) whether the consideration received for imported and indigenous designs and drawings was liable to service tax as consulting engineering service; (ii) whether the services rendered by a foreign company in India during the relevant period were taxable before insertion of the specific charging provision for imported services.

Issue (i): whether the consideration received for imported and indigenous designs and drawings was liable to service tax as consulting engineering service.

Analysis: The imported designs and drawings were found to have been separately imported, covered by the relevant bill of entry, and assessed by Customs as goods under Chapter 49. The indigenous designs and drawings were also treated as goods under the Central Excise Tariff. Once the drawings and designs were independently assessable as goods, the same consideration could not be subjected to service tax as consultancy. The part of the contract relating to supply of such drawings and designs therefore stood outside the service tax levy.

Conclusion: The demand was not sustainable in respect of the value attributable to supply of imported and indigenous designs and drawings.

Issue (ii): whether the services rendered by a foreign company in India during the relevant period were taxable before insertion of the specific charging provision for imported services.

Analysis: The relevant period preceded insertion of Section 66A of the Finance Act, 1994. The levy of service tax on services provided from outside India and received in India was held to arise only from that charging provision, and a rule could not independently create the charge in its absence. The presence of a project office or liaison office did not alter the absence of a charging provision for the period in dispute.

Conclusion: The services rendered by the foreign assessee during 1-4-1999 to 30-11-2001 were not taxable under the service tax law then in force.

Final Conclusion: The impugned service tax demand and penalty were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Service tax cannot be levied for the pre-Section 66A period on services rendered by a foreign provider to an Indian recipient, and goods-like drawings and designs independently assessed as goods cannot be recharacterised as taxable consulting engineering services.

---