2014 (8) TMI 96 - AT - Service Tax

Drawings and designs imported by the appellant - transfer of technical know-how - demand under the category of design service - The contention of the appellant is that the same transaction cannot be treated as supply of goods for the purpose of Customs duty and supply of services for the purposes of service tax liability - Held that - the entire transaction was treated as supply of goods for the purpose of customs duty and if that be so, we do not understand how the very same transaction can be treated as supply of service and levy of service tax can be made on the entire value of transaction once again. - the entire transaction is one of transfer of technical know-how inasmuch as R&D cess under Section 3 of the R&D Cess Act has been paid and therefore the transaction does not merit to be treated as design services . Design services would come within the category of IPR inasmuch as the supply of the drawings and designs, the foreign entities have applied for patent and since the transfer is of permanent nature, it does not fall within the definition of IPR services as defined in the Finance Act, 1994. The appellant has declared the transaction to the concerned authorities at the relevant time and there is no suppression of any fact or withholding of any information from any of the authorities. - stay granted.

Summary

Issues:
Service tax demand confirmation, imposition of penalties under Finance Act, 1994, nature of transaction involving transfer of technical know-how, applicability of service tax on import of drawings and designs, time-barred demand, suppression of facts, grant of stay.

Service Tax Demand Confirmation and Penalties:
The judgment involves appeals and stay petitions against an Order-in-Original confirming a service tax demand of Rs. 21,79,28,167 along with interest and penalties under the Finance Act, 1994. The appellant, M/s. Suzlon Energy Ltd., contested the demand, arguing that the transaction with foreign counterparts for design and drawing services, including technology transfer, did not constitute a supply of services liable to service tax. The appellant had imported drawings and designs, declaring the entire consideration paid, and discharged R&D cess under the R&D Cess Act. The Excise department contended that the drawings and designs imported constituted design services liable to service tax under Section 65(105)(zzzzd). The appellant relied on precedents to argue that if customs duty had been paid, the same transaction could not be taxed under service tax laws.

Nature of Transaction and Applicability of Service Tax:
The appellant maintained that the transaction should be treated as a transfer of technical know-how, not design services subject to service tax. They argued that the transaction involving the import of drawings and designs, declared for customs duty, should not be taxed again under service tax laws. The appellant pointed out that the design services provided fell under intellectual property rights (IPR) and the transfer was permanent, not temporary. They also highlighted that the transaction was disclosed to relevant authorities in a timely manner, and suppression of facts was not an issue. The judgment acknowledged the appellant's position that the transaction was primarily a transfer of technical know-how, not a supply of services, and granted a waiver from pre-deposit of dues, staying recovery during the appeals' pendency.

Time-Barred Demand and Suppression of Facts:
The appellant argued that a significant portion of the demand was time-barred as the show-cause notices were issued after the period in question. They contended that since transactions were disclosed to competent authorities at the time, suppression of facts did not occur. The judgment agreed that the bulk of the demand was time-barred due to timely disclosure, further supporting the appellant's case for a stay on recovery.

In conclusion, the judgment analyzed the nature of the transaction, applicability of service tax, time-barred demand, and suppression of facts, ultimately ruling in favor of the appellant by granting a waiver from pre-deposit and staying recovery during the appeals' pendency.