Service tax demand on imported designs and drawings rejected as customs duty already paid under Customs Act 1962

CESTAT Kolkata held that service tax demand on imported designs and drawings under intellectual property services was not sustainable since these were classified as goods under Customs Act, 1962 and customs duty was already paid. The appellant's payment of service tax under reverse charge for other services like supervision and training was upheld as correct. The tribunal set aside penalties under Section 78, ruling that paying service tax under a different category constituted only a procedural lapse without suppression of facts or intent to evade tax.

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Issues:
1. Whether the appellant is liable to pay service tax on the importation of drawings and designs under the category of "intellectual property services"Rs.
2. Whether the penalty imposed on the appellant under Section 78 of the Finance Act, 1994 is justifiedRs.

Analysis:

Issue 1:
The appellant contested the demand of service tax amounting to Rs.91,97,197/-, including cess, for the supply of designs and drawings by Beijing Sino-Steel Industries and Trade Group Corp (SSIT), China. The Department alleged that the designs and drawings provided by SSIT constituted taxable "Intellectual property services" under Section 65(105)(zzr) of the Act. The appellant argued that since the designs and drawings were considered as goods under the Customs Act, 1962, and customs duty had been paid on importation, no service tax was payable. The Tribunal agreed with the appellant, holding that the imported drawings cannot be considered taxable under "intellectual property services." Consequently, the demand for service tax on the drawings and designs was set aside.

Furthermore, the Tribunal noted discrepancies in the appellant's claim of paying the entire service tax amount under protest for intellectual property services. It was revealed that the appellant had paid only a portion of the total amount under protest. The Tribunal upheld the payment of service tax on other services received by the appellant, such as supervision charges and training, without protest, under reverse charge.

Issue 2:
Regarding the penalty imposed under Section 78 of the Finance Act, 1994, the Tribunal found no evidence of the appellant intentionally evading tax payment. The appellant had paid service tax under the category of "consulting engineering service" instead of "intellectual property service" due to a procedural lapse. As such, the Tribunal concluded that no penalty could be imposed on the appellant for this procedural error and set aside the penalty.

In conclusion, the Tribunal ruled in favor of the appellant on the issue of service tax liability for the importation of drawings and designs, setting aside the demand for service tax under the category of "intellectual property services." The Tribunal also set aside the penalty imposed under Section 78 of the Finance Act, 1994, due to the absence of intentional tax evasion by the appellant.

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