Custom, Excise & Service Tax Tribunal
M/S Solitz Corporation Vs. C.S.T., vs New Delhi on 1 September, 2008
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R.K.Puram, New Delhi COURT-I Date of hearing:1.9.2008 Date of pronouncement: 01.10.2008 Service Tax Appeal No.672 of 2007 Arising out of the order in original No.22/VKG/2007 dated 13 August, 2007 passed by the Commissioner, Service Tax, New Delhi. For Approval and Signature: Honble Mr. Justice S.N. Jha, President Honble Mr. M. Veeraiyan, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant Respondent
M/s Solitz Corporation vs. C.S.T., New Delhi Appearance: Shri M. Venkataraman, Advocate for the appellant
Shri R.K. Verma, Authorized Departmental Representative (DR) for the Revenue Coram: Honble Mr. Justice S.N. Jha, President Honble Mr. M. Veeraiyan, Member (Technical) Order No.____________________ Per M. Veeraiyan:
This is an appeal against the order of the Commissioner No.22/BKG/2007 dated 13.8.07 in so far as the same relates to demand of Rs.2,79,30,192/- on foreign design and drawings along with interest and imposition of penalty under Sections 76 and 77 of the Act.
2. Heard both sides. The learned Advocate also filed a written submission at the time of hearing which has been taken into account.
3. The relevant facts, in brief, are as follows:
a) The appellant is a company incorporated in Japan and has a project office at Jamshedpur. They entered into agreement with TISCO to supply the design and drawing to the office of TISCO/their consultant M/s M.N. Dastur Co. Ltd., Calcutta in connection with installation of their Coupled Pickle Line and Tandem Cold Mill. As per the contract the drawings and designs are required to be as per the technical specifications given by TISCO.
b) The relevant portion of the sample contract relating to supply of design and drawing is as follows:
CRMP/CON/PL-TCM/04 dated 24.6.98 the clause 1.4 of the Schedule-1 of Agreement of CRMP/CON/PL-TCM/04 dated: 24.6.98 1.4 Supply of imported designs and drawings 1.4.1 Supply of foreign design & drawings 1.4.1.1 In consideration of the payments made by the purchaser, the contractor shall supply imported designs and drawings.
The services to be provided by the contractor shall ensure a coordinated design and drawing for PL-TCM in order to satisfy purchasers requirement as per Technical Specification , 2.2.2. All foreign designs and drawings shall be delivered to purchases and engineers office (s) in India.
c) The Commissioner held that the supply of foreign design and drawing is covered under the consulting engineering service; that the service which originated in Japan had travelled to India ; that drawings and designs are prepared /originated in Japan but such designs and drawings were delivered to TISCO in India either at Engineers place or office of M/s M.N. Dastur & Co. or at the office of TISCO at Jamshedpur. He held that the requisite technical information is part and parcel of the said designs and drawings; the rendering of services was completed by supplying the design and drawing and the technical information to the plant at Jamshedpur. The advices, the consultancy or technical assistace were given in the form of drawings and designs. He, accordingly, confirmed the demand of duty under the head consulting engineering service.
d) The Commissioners order relates to demand of duty on other services also and the total demand of tax confirmed is Rs.4,55, 10,464/-. However, the dispute is restricted to the demand under the category of consulting engineer relating to design and drawing supplied from Japan. The prayer in the appeal is accordingly, the alleged service tax demand of Rs 2,79,30,192/- on foreign designs and drawings along with interest and penalty under Section 76 and 77 of the Act be set aside/ dropped.
4. The learned Advocate contests the demand on the following grounds:
a) The drawings and designs have been prepared in Japan and they were provided/delivered in a media and would thus qualify as supply of goods. Such drawings and plans and manuals are considered as goods falling under Chapter 49 of the Schedule to the Indian Tariff Act. Such supply of goods cannot be considered as providing of service .
b) He relies on the decision of the Tribunal in the case of Kirloskar Electric Co. Ltd. reported in 2007 (6) STR 173 (Tri-Bang.) wherein it has been held that transferring the rights by supply of drawing/designs and technical data cannot be considered as an activity under consulting engineers services. For attracting consulting engineering service, there should be professional advice, consultancy and technical assistance to the customers.
c) Alternatively, he submits that even if providing such drawing and design is treated as rendering of services then such services have been rendered outside the taxable territories of India and hence would not attract service tax for the period prior to introduction of Section 66A with effect from 18.4.06. He relies on the following decisions in support of his claim that services rendered abroad prior to 18.4.06 are not liable for payment of service tax:
i) Aditya Cement vs. C.C.E.., Jaipur 2007 (7) STR 153 (Tr-Del.)
ii) Foster Wheeler Energy Ltd. vs.C.C.E. 2007 (7) STR 443 (Tri-Ahmd.)
iii) Prabhat K. Tyagi vs. C.C.E., Bangalore 2008 (85) RLT 694 (CESTAT-Bang.)
iv) C.C.E., Ludhiana vs. M/s Bhandari Hosiery Exports Ltd. 2008 TION- 604 CESTAT Del.
d) He submits that the invocation of extended period of limitation is not sustainable. The Commissioner has rightly held that no penalty is imposable on them holding that there were valid reasons for invoking Section 80 of the Act. Having held that no penalty is imposable under Section 78 and provisions of Section 80 are attracted, confirmation of the demand relating to period from 1999 to 2002 in pursuance of show cause Notice dated 20.4.2005 invoking extending time limit was not justified.
4. The learned DR reiterates the findings of the Commissioner. He submits that the claim that the drawing and designs are goods may not be accepted. They are primarily services rendered and the services have been rendered in India only by delivering the said designs and drawings. 5.1. We have carefully considered the submissions from both sides. The relevant portion of the findings of the Commissioner holding the supply of designs and drawings as services are reproduced below:
ii) I find that the drawings and designs were prepared /originated in Japan i.e outside the territory of India, however, it is deemed that such designs and drawings were delivered to TISCO in India either at engineers place/office i.e. Office of M/s MN Dastur & Co.Ltd.,Calcutta (clause 2.5 of the said contract) or at the office of TISCO at Jamshedpur. It is an admitted fact that designs and drawings were sent to India through courier by them. Thus, it is not a case of mere preparation of designs and drawings outside India vis-`-vis the facts in the case of Thyssen Kroup JBM Pvt. Ltd. 2005 (180) ELT 285, hence the said judgment cannot be relied upon in the instant case, as in the instant case the service in the tangible form is provided in India.
iii) Primarily, the claim of rendering service in the form of preparing designs and drawing might have originated outside India but the act of such rendering or transferring designs and drawings, materially evidenced and admitted by SOJITZ, had culminated within India. Hence , the service purported to be originated in Japan had travelled to India, thus, the activity falls within the ambit of the laws of India, more so, under Section 64 of the Act ibid.
iv) Secondly, such designs and drawings along with technical information admitted by SOJITZ were deemed and required to be utilized in the territory of India i.e. at Jamshedpur. SOJITZ had never disputed this fact that such designs and drawings were not delivered and utilised in India. The supply of design and drawings could not have been completed without the delivery of the same in India. It is also not the case of SOJITZ that the contract is limited to the supply of designs and drawings in Japan only when the requisite technical information is also a par and parcel of the said designs and drawings.
v) Hence , I hold that such services were deemed to have been provided in the territor7yof India.
vi) The issue now is whether such services are taxable services in the ambit of definition of CES supra. Referring to the judgments in the listed cases, it is observed that the issue is not regarding in what form it has been rendered but relates to what has been rendered. Once the taxable services are identified and established, the form in which it is rendered becomes immaterial and also the passing and rendering of such services through physical form, like drawings etc. do not assume a deemed understanding that there is a sale of goods. On the other hand, the services have assumed the shape of physical forms which fall in the ambit of Consulting Engineers services. Hence, if such drawings are received through Ports by way of filing bill of entry or through courier as claimed by SOJITZ, it does not necessarily mean that it dose not form a part of services as the transaction related to the rendering of service is completed by supplying the designs and drawings and the technical information for the plant at Jamshedpur. Such services, consultancy, or technical assistance being provided in the form of drawings etc. cannot overrule the fact that they are basically the medium of rendering taxable service. 5.2. The entire work relating to designs and drawings has been completed in Japan; the appellant has also engaged foreign based sub contractors in connection with the work of completion of the designs and drawings; the designs and drawings have been delivered through courier. The contract refers to supply of designs and drawings by way of purchase on payment of the agreed price. These designs and drawings may have technical inputs in them. However, if a question is asked as to whether these designs and drawings which were sent as a parcel or through courier would attract the provisions of Customs Act, the answer is in the affirmative.
5.3. Under the above circumstances, the view canvassed by the learned Advocate that the drawings and designs should be treated as goods cannot be considered unreasonable. Such a view has been upheld in the case of Kirloskar Electric Co.Ltd. cited supra with the following findings:
4. On a careful consideration, we notice that the authorities have considered the assignment of agreement for transferring the rights therein for supply of drawings, design , technical data, etc. to be covered under the definition of consulting engineer The Tribunal in the noted judgments have clearly held that mere supply of technology pertaining to design, engineering and technical specifications has no access with the activity of consulting engineer services. In terms of the said definition of the consulting engineer, the professional advice, consultancy and technical assistance has to be given to the customers. Such an activity has not been done in the present case. Therefore, the rulings cited supra would clearly apply to the facts of this case also. Respectfully following the ratio therein, the impugned order is set aside and the appeals are allowed. 5.4 In view of the above, the appeal requires to be allowed on merits. Further, we find that Commissioner has held that there were sufficient causes to invoke the provisions of Section 80 of the Act, and, therefore, his invoking extended time limit for demanding service tax is not justified.
6. Appeal is allowed with consequential relief.
(Pronounced in the open Court on .10.2008
(Justice S.N. Jha)
President
(M. Veeraiyan)
Member (Technical)
scd/