2024 (8) TMI 611 - AT - Service Tax

Levy of service tax - Intellectual property services - supply of designs and drawings, by SSIT - penalty u/s 78. Levy of service tax - HELD THAT - The appellant has paid service tax of Rs.48,78,395/- along with interest, with respect to import of design and drawings. According to them there is no liability of service tax on these services. As these designs and drawings were considered as goods under Customs Act, 1962 and customs duty has already paid on the importation of the goods, the demand of service tax to the extent of Rs.48,78,395/-in the impugned order, under the category of Intellectual property services , paid by the appellant under protest, is not sustainable and accordingly we set aside the same. The appellant has made payments towards receiving of various other services such as supervision charges and Training of personal etc. for which the appellant paid service tax, under reverse charge without any protest. It is found that the appellant has rightly paid service tax on the taxable services such as supervision charges and Training of personal, without any protest. Thus, the payment of service tax by the appellant on other services received by them, under reverse charge upheld. Penalty u/s 78 of the Finance Act, 1994 - suppression of facts or not - HELD THAT - There is no suppression of facts with intention to evade the payment of tax established in this case. The appellant has paid service tax under the category of consulting engineering service instead of intellectual property service as claimed by the Department. If service tax is paid under a different category, it is only a procedural lapse, for which no penalty can be imposed. Accordingly, no penalty imposable on the appellant and thus, the penalty imposed under Section 78 of the Finance Act, 1994 set aside. Appeal disposed off.

Summary

Issues:
1. Whether the appellant is liable to pay service tax on the importation of drawings and designs under the category of "intellectual property services"?
2. Whether the penalty imposed on the appellant under Section 78 of the Finance Act, 1994 is justified?

Analysis:

Issue 1:
The appellant contested the demand of service tax amounting to Rs.91,97,197/-, including cess, for the supply of designs and drawings by Beijing Sino-Steel Industries and Trade Group Corp (SSIT), China. The Department alleged that the designs and drawings provided by SSIT constituted taxable "Intellectual property services" under Section 65(105)(zzr) of the Act. The appellant argued that since the designs and drawings were considered as goods under the Customs Act, 1962, and customs duty had been paid on importation, no service tax was payable. The Tribunal agreed with the appellant, holding that the imported drawings cannot be considered taxable under "intellectual property services." Consequently, the demand for service tax on the drawings and designs was set aside.

Furthermore, the Tribunal noted discrepancies in the appellant's claim of paying the entire service tax amount under protest for intellectual property services. It was revealed that the appellant had paid only a portion of the total amount under protest. The Tribunal upheld the payment of service tax on other services received by the appellant, such as supervision charges and training, without protest, under reverse charge.

Issue 2:
Regarding the penalty imposed under Section 78 of the Finance Act, 1994, the Tribunal found no evidence of the appellant intentionally evading tax payment. The appellant had paid service tax under the category of "consulting engineering service" instead of "intellectual property service" due to a procedural lapse. As such, the Tribunal concluded that no penalty could be imposed on the appellant for this procedural error and set aside the penalty.

In conclusion, the Tribunal ruled in favor of the appellant on the issue of service tax liability for the importation of drawings and designs, setting aside the demand for service tax under the category of "intellectual property services." The Tribunal also set aside the penalty imposed under Section 78 of the Finance Act, 1994, due to the absence of intentional tax evasion by the appellant.