COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX versus M/S SUZLON ENERGY LTD.

Citation: [2023] 4 S.C.R. 324 · Decided: 10-04-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Disposed off

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2023] 4 S.C.R.
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE &
SERVICE TAX
v.
M/S SUZLON ENERGY LTD.
(Civil Appeal Nos. 11400-11401 of 2018)
 APRIL 10, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Finance Act, 1994 – ss.65(35b), 65(105)(zzzzd) – “design
services” – Respondent engaged in manufacture of Wind Turbine
Generator (WTG), entered into a product development and purchase
agreement with its sister concern in Germany for manufacturing
WTG in India – Various models of “Engineering Design &
Drawings” were imported by the respondent for manufacturing of
WTG – If leviable to service tax under the category of “design
services” as defined u/s.65(35b) r/w s.65(105)(zzzzd) – Held: Yes –
Definition of “design services” is very clear and wide enough to
cover all “design services” – Merely because “Engineering Design
& Drawings” prepared and supplied by sister company of the
respondent were shown as ‘goods’ under the Customs Act and in
the bill of entry, that by itself cannot be a ground to take such
services out of the definition of “design services” under the 1994
Act – View taken by the CESTAT that the same activity cannot be
taxed as goods and services is absolutely erroneous – Impugned
judgment and order passed by the CESTAT setting aside the levy of
service tax is quashed and set aside – However, matter remitted
back to the CESTAT to consider the grounds raised on behalf of the
respondent.
Tax/Taxation:
Aspect theory – Application of – Held: There can be two
different taxes/levies under different heads by applying the aspect
theory – 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.
Sale of goods and a contract of service – Distinction – Held:
There is a distinction between the sale of goods and a contract of
service – What is relevant is the intention of the contracting parties.
[2023] 4 S.C.R. 324
324
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Disposing of the appeals, the Court
HELD: The 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.
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’. Despite this, M/s 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”. However, by the impugned judgment
and order, the CESTAT has held that the respondent is not liable
to pay the service tax under “design services” under the Finance
Act, 1994 mainly on the ground that the custom authority
considered the same as ‘goods’ and therefore the same activity
cannot be taxed as ‘goods’ and ‘services’. The aforesaid view is
absolutely erroneous. There can be two different taxes/levies
under different heads by applying the aspect theory. 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
COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE
TAX v. M/S SUZLON ENERGY LTD.
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SUPREM

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