AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 409
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 2. That the respondent herein was providing various taxable services. The respondent was also in the manufacture of WTG. It has three subsidiary companies situated in Germany and Netherlands with whom product development and purchase agreement had been entered into. 2.1 The respondent had entered into an agreement dated 01.04.2007 (w.e.f. 01.01.2007) with M/s Suzlon Energy GmbH, Germany, a sister concern for the product development and purchase agreement to be used exclusively for manufacturing of WTG in the territory of India. The products were exclusively defined in para 1.10 of the said agreement. 2.2 The respondent, while importing these designs filed Bill of Entry with the Custom authorities and classified the same as "Paper" under Chapter Sub-heading No. 49119920 of the Customs Tariff and claimed benefit of 'Nil' rate of customs duty under Notification No. 021/2002 for BCD and Notification....
X X X X Extracts X X X X
X X X X Extracts X X X X
....services. Consequently, the CESTAT has set aside the Order-in-original on the ground that "drawing and design" are to be treated as goods and therefore it cannot be treated as service. 2.7 Feeling aggrieved and dissatisfied with the impugned common order passed by the CESTAT, the Revenue has preferred the present appeals. 3. Shri N. Venkataraman, learned Additional Solicitor General of India appearing on behalf of the Revenue has submitted that the substantial question of law arises for the consideration of this Court is, "whether "Engineering Design & Drawings" of various models imported by the respondent for the purpose of manufacturing of WTG are leviable to service tax under the category of "Design Services" as defined under section 65(35b) r/w section 65(105)(zzzzd) of the Finance Act, 1994 during the period June, 2007 to September, 2010? 3.1 Shri N. 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 merely because the intellectual property put in a media, it would no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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) However, these are mere services and do not involve a sale for the purposes of Entry 54 List 2; h) The reason is that ultimately one has to apply the Gannon Dunkerly test. If there is an instrument of contract which may be composite in form, in any case other than the exceptions in Article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service and impose tax on sale; i) The test, therefore, for service contracts, other than the two contracts falling under Article 366(29A), would be 'did the parties have in mine or intend separate rights arising out of the sale of goods? If there was no such intention, there is no sale even if the contract could be disintegrated.'; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....settled position of law, supply of goods as per specifications given by the customer is also treated as sale of goods. 4.2 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. It is submitted that in the case of Hindustan Shipyard Ltd. v. State of A.P., reported in (2000) 6 SCC 579, it is held that if the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. Further, if the bulk of material used in construction belongs to the manufacturer who sells the end product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. 4.3 Learned senior counsel appearing on behalf of the respondent has heavily relied upon the decision of this Court in the case of Associated Cement Companies Ltd. v. Commissioner of Customs, reported in (2001) 4 SCC 593. It is submitted that in the said decision, this Court has held that any media which contain drawings or designs would be regarded as goods un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court has observed that the aspect theory does not allow the value of goods to be included in services and vice versa. Reliance is placed on the observations made in para 88 of the said judgment. 4.8 It is further submitted by Shri V. Sridharan, learned senior counsel appearing on behalf of the respondent that before the CESTAT, the respondent raised a specific ground that the services (if any) rendered by a foreign entity will not fall within the purview of "design services". The respondent also raised a specific ground that the extended period of limitation cannot be invoked. However, though the said submissions have been noted be the CESTAT, the CESTAT has not dealt with those contentions and therefore it is prayed that the matter may be remanded to the CESTAT to decide all these questions. 5. We have heard learned counsel for the respective parties at length. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 1.10.6 Intellectual property and intellectual property rights relating thereto in so far it belongs to German Inventions Law. 7. 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. The respondent engaged the sister concern M/s 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, as such, the respondent was liable to pay service tax on the "design services" received from abroad under reverse charge. It was also found that M/s SEG was a related unit, i.e., subsidiary of the assessee and the amount received for service by M/s 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'. 8. Despite the above, M/s SEG raised....