2013 (5) TMI 453 - AT - Service Tax

Import of IPR - Duty of customs or service tax - Import of imported drawings and designs along with the plant and machinery and capital goods. - held that - It is not in dispute that the appellant has paid the entire amount of service tax liability and interest thereof under the Head Intellectual Property Right Services. It is also not in dispute that the said service tax liability has arisen only on the ground of receipt of Drawing and Designs from upcountry seller of the Plants and Machinery to the appellant for installation/ fabrication and erection the said machinery for manufacturing the finished goods by the appellant. - levy of service tax upheld. Regarding penalty - held that - there cannot be any malafide intention attributable to the actions of the appellant in not discharging the service tax liability under the category of Intellectual Property Right Services. Be that as it may, we find that the entire amount of service tax liability stands deposited along with interest before the issuance of show cause notice. We also note that the appellant was eligible to avail Cenvat credit on the such service tax paid, as it was in relation to the Plant and Machinery, which is used for manufacturing of finished goods. - levy of penalty deleted - decided in favor of assessee.

Summary

Issues:
1. Classification of imported drawings and designs under Customs Tariff Act.
2. Liability for service tax under Intellectual Property Rights Services.
3. Dispute over penalties under Sections 76, 77, 78, and 75A of the Finance Act, 1994.

Classification of Imported Drawings and Designs:
The appeal concerned the classification of imported drawings and designs by an appellant engaged in manufacturing various steel products. The appellant imported drawings and designs along with capital goods and raw materials, claiming them to fall under specific chapters of the Customs Tariff Act. Customs authorities accepted the declaration initially. However, the Service Tax department later alleged that the drawings and designs constituted taxable services related to Intellectual Property Rights. This led to a show cause notice demanding service tax, interest, and penalties. The appellant contended that they had declared the drawings and designs as goods to the Customs Department, following legal precedents. The Tribunal noted that the appellant had paid the entire service tax liability and interest, upholding the same.

Liability for Service Tax under Intellectual Property Rights Services:
The main issue revolved around the liability of the appellant for service tax under Intellectual Property Rights Services due to the import of drawings and designs. The appellant argued that they had acted in good faith based on legal precedents, believing that discharging Customs duty on the drawings and designs absolved them of further tax liabilities. The appellant had already paid the service tax with interest before the show cause notice was issued. The Tribunal acknowledged that the service tax liability arose from the receipt of drawings and designs for machinery installation and fabrication. Ultimately, the Tribunal upheld the service tax liability and interest paid by the appellant.

Dispute Over Penalties:
Regarding penalties under various sections of the Finance Act, the Tribunal found that the appellant had declared the drawings and designs as goods to the Customs authorities, claiming an exemption at the time of import. The Tribunal noted that the appellant had deposited the entire service tax liability with interest before the show cause notice. Considering these factors, the Tribunal held that there was no malicious intent on the part of the appellant in not discharging the service tax liability. Consequently, the Tribunal invoked Section 80 of the Finance Act, 1994, setting aside the penalties imposed by the adjudicating authority. The penalties under Sections 75A, 76, 77, and 78 were deemed unwarranted and were thus nullified.

In conclusion, the Tribunal disposed of the appeal by upholding the service tax liability and interest paid by the appellant while setting aside the penalties imposed under various sections of the Finance Act, 1994.