Case Law Details
CESTAT, KOLKATA BENCH
Mitsui & Co. Ltd.
versus
Commissioner of Central Excise & Service Tax, Jamshedpur
FINAL ORDER NO. A-255/KOL./2012
Appeal No. ST/348 of 2011
Date of Pronouncement – 30.04.2012
ORDER
D.M. Misra, Judicial Member
The present appeal is filed by the appellant against the Order-in-Original No. 17/S.Tax/Denovo/ Commissioner/2011, dated 6-6-2011 passed by the Commissioner of Central Excise, Jamshedpur.
2.1 Briefly stated the facts of the case are that the Appellant under four different agreements with M/s. Tata Iron & Steel Company Ltd. (TISCO) were entrusted the work of setting up of a Skin Pass Mill (SPM) of the capacity of 10 lacs Tons per year for TISCO’s Cold Rolling Mills Project at Jamshedpur. These four different agreements were for implementation of the entire project which included supply of imported and indigenous plant and machinery drawing and design, supervision of activities on site and of detailed engineering in India. From these four agreements, Revenue has not disputed two agreements relating to design, manufacture and supply of imported plant, machinery and equipment and also for design, manufacture and supply of indigenous plant, machinery and equipment for setting up of the said SPM. The department has disputed the Agreements No. CRMP/COM/SPM/3, dated 31-3-1998 (Offshore drawing/supervision) and Agreement No. CRMP/COM/SPM/4 dated 6-6-1998 (Onshore Drawings & Designs). These agreements are as below :
|
Sl. No. |
Name of the Party |
Agreement No & Date |
Contract’s Clause |
Scope/Details of work |
Amount involved |
|
1. |
M/s Mitsui & Co. Ltd., 2-1, Ohtemachi 1- Chrome, Chiyoda- Ku, Tokyo, Japan | CRMP/COM/ SPM/03 dated 16-7-1998 | Supply of imported design & drawing to be delivered in India at Purchaser’s & Engineer’s Office | J. YEN 211200000 | |
| 2.2.1 1. Supervision of Detailed Engineering, Design & Drawing Originating in India | J. YEN 1511400 | ||||
| 2. Supervision of Manufacture of Indigenous Equipment at Indian works | J. YEN 1147,000 | ||||
| 3. Supervision of Erection | J. YEN 55,858,900 | ||||
| 4. Start-Up & commissioning | J. YEN 35,671,700 | ||||
|
2. |
M/s Mitsui & Co. Ltd., 2-1, Ohtemachi 1- Chrome, Chiyoda- Ku, Tokyo, Japan | CRMP/COM/ SPM/04 dated 6-6-1998 | 2.1 Supply of indigenous Design & Drawing to be delivered in India at Purchaser’s &’ Engineer’s Office | Rs. 1,75,79000 |
2.2 The relevant Clauses in respect of Agreement No. CRMP/CON/ SPM/03 are reproduced below :
“1.1.1 Supply of imported designs and drawings
1.1.1 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 in order to enable the Purchaser to efficiently operate Skin Pass Mill having an annual capacity of 1,000,000 tonnes…………
1.1.2 Supervision by Foreign Technicians :
The Contractor shall provide services for supervision by Foreign Technician of detailed engineering in India, manufacture of indigenous equipment, erection, start-up, commissioning and demonstration of performance guarantee tests of Skin Pass Mill ensuring timely completion……….
1.1.2.1 Supervision of Detailed Engineering in India
The Contractor shall guide and assist his Indian Sub-suppliers of indigenous equipment, if required, in correctly interpreting the engineering drawing supplied by the Contractor based on which the detailed engineering drawing and/or manufacturing drawings will be delivered…………..
1.1.2.2 Supervision of Manufacture of Indigenous Equipment
The contractor shall provide Foreign Technicians’ services as will be necessary to supervise the indigenous manufacturing activities…………….
1.1.2.3 Supervision of Erection, Cold Test, Start-up & Commissioning
The Contractor shall provide Foreign Technicians for supervision of erection work of Skin Pass Mill as a whole to ensure that erection work is carried out in a proper and workman like manner and in accordance with the agreed time schedule and standards required by the Contractor for fulfilment of guaranteed performance parameters………….”
2.3 In respect of Agreement No. CRMP/CON/SPM/04 dated 6-6-1998, the relevant Clause of the Schedule 2 of the Agreement for contract price is reproduced below :
“All indigenous design and drawings shall be delivered by the to Purchaser’s and Engineer’s Office (s) in India, after duly completing all required formalities at the expense of the Contractor”.
2.4 On the basis of the said stipulations in the relevant agreements, the Department has issued show-cause notice alleging that the services rendered under the said two Agreements by the Appellant to M/s. TISCO fall under the category of “Consulting Engineer”. The definition of “Consulting Engineer” as was in existence at the relevant time reads as follows :
“Consulting Engineer means any professionally qualified engineer or an engineering firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering”.
2.5 Consequently, the demand of Rs. 76,34,577/- was issued to the appellant for the period from 1-4-1999 to 30-11-2001 invoking extended period of limitation on 20-10-2004. The said demand notice was confirmed by the Commissioner of Central Excise and Service Tax, Jamshedpur vide its Order-in-Original No. 1/S.Tax/Commissioner/06, dated 25-7-2006. Aggrieved by the said order, the appellant had filed an appeal before this Tribunal.
2.6 This Tribunal, after hearing both sides, remanded the case to the adjudicating authority making following observations :
“4. We find that in this case major portion of the demand is in respect of supply of imported designs and drawings. As per the Appellant the same were considered at the time of import of goods and bill of entry was filed which was duly assessed under the Customs Act. The same pleas raised in respect of the engineering and designs originating in India. We find that as the designs and drawings which are part of the contract are treated as goods by the Customs Authorities and were assessed under the Customs Act therefore the finding that the same are service is not sustainable and requires re-consideration. The impugned order is set aside and the matter is remanded to the adjudicating authority for de novo adjudication. The adjudicating authority will decide afresh all the issues after affording an opportunity of hearing to the Appellant. Both sides are at liberty to produce evidence in support of their claims before the adjudicating authority.”
2.7 In the remand proceeding, the ld. Commissioner after considering the relevant Bill of Entry produced before him, confirmed the demand of Service Tax of Rs. 76,34,577/- and imposed equivalent penalty under Section 78 of the Finance Act, 1994. Hence the present appeal.
3.1 The ld. Advocate has submitted that the appellant had entered into agreement with M/s. TISCO in 1998 for setting up of SMP of the capacity of 10 lakh tonnes per annum. In terms of the said agreement, the appellant was entrusted with job of design, manufacture, supply of imported & indigenous plant, machinery and equipment, supply of imported & indigenous designs and drawings and other related activities such as erection and commissioning of SPM. It is his contention that the imported design and drawing, which were supplied by the appellant from Japan, were in a fully developed and ready for utilization condition and the same were imported by M/s. TISCO and assessed by Customs authorities in India as ‘goods’ falling under Chapter 49 of the Customs Tariff Act, 1975. Similarly, the appellant procured indigenous designs and drawings from Indian sub-suppliers and supplied to M/s. TISCO. Regarding supervision activities of the said SPM, he has submitted that the foreign technicians had visited India to ensure that the activities relating to erection, installation, commissioning of SMP were being performed in conformity with the technical specifications provided by the contractor. It is his plea that the appellant’s job was only to supervise the activity of installation, commissioning. It his submission that the activities carried by the appellant are not liable to Service tax under the heading “Consulting Engineering Services” as defined under Section 65(31) of the Finance Act, 1994 during the relevant period.
3.2 The ld. Advocate has assailed the impugned Order on four counts. At the first instance, he has submitted that since the Customs Authorities have assessed the imported drawings and designs as ‘goods’ and appropriate Customs duty was paid under Chapter 49 of the Customs Tariff Act, 1975 by M/s. TISCO, the same cannot be treated as services in view of the specific findings recorded by this Tribunal in the first round of litigation. In support, he has referred to the Tribunal’s decision in the case of Solitz Corpn. v. CST [2009] 18 STT 550 (New Delhi – Cestat) wherein it is held that “designs and drawings sent as parcel or through courier attracting provisions of Customs Act, 1962 ought to be treated as “goods”. Also, he has referred to the Tribunal’s decision in the case of Kirloskar Electric Co. Ltd. v. CCE [2007] 9 STT 128 (Bang. – Cestat) and CCE v. MICO Ltd. [2007] 11 STT 210 (Bang – Cestat), wherein it is also held that supply of designs and drawings would invariably constitute “supply of goods” and attract the provisions of Customs Act and therefore, any demand of Service tax on the said goods are liable to be quashed. Further, he has submitted that supply of indigenous designs and drawings by the local buyers cannot be viewed differently. The contention is that design and drawing on a media is classifiable under Chapter 4906 of the Central Excise Tariff Act, 1985 attracting ‘nil’ rate of duty. Therefore, going by the same principle as applicable to the imported goods, indigenous drawings and designs shall be treated as ‘goods’, applying the principle laid down by the Hon’ble Supreme Court in the case of Associated Cement Companies Ltd. v. CC 2001 (128) ELT 21, hence Service tax is not leviable on such indigenous designs and drawings.
3.3 Further, advancing the second limb of his argument, the ld. Advocate has submitted that during the relevant period, the taxable service under Heading “Consulting Engineer” prescribed that any service provided to a client by a Consulting Engineer in relation to advise, consultancy and technical assistance in any manner in one or more disciplines of engineering. The contention is that the definition of “Consulting Engineer” which was amended w.e.f. 1st May, 2006, reads as under :
“consulting engineer means any professionally qualified engineer or an any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering.”
It is his submission that prior to 1-5-2006, it was only an ‘engineering firm’, that was liable to service tax as consulting engineer within the meaning of Section 65(31) of the Finance Act and not a body corporate providing the services of consulting engineer; the body corporate were made liable to Service tax only after 1-5-2006.
3.4 Thirdly, the ld. Advocate have argued that the services of erection, installation and commissioning, became taxable only w.e.f. 10-9-2004 i.e. the date from which the said services were introduced in the Finance Act. The C.B.E. & C. in its Circular No. 79/9/2004-S.T., dated 13-5-2004 clarified that erection and installation activities are not covered under the head Consulting Engineer’s services.
3.5 The learned Advocate has further submitted that the appellant is a company based and incorporated under the Laws of Japan in Tokyo and hence, no Service tax can be levied on such service either under the head Consulting Engineer or any other head during the period in dispute since the charge/levy of Service tax on services provided from outside India and received in India was introduced for the first time by inserting Section 66A w.e.f. 18-4-2006 in the Finance Act, 1994. Thus prior to that date no tax could be levied on any service provided from outside India. In this connection, he has referred to the judgment of the Hon’ble Bombay High Court in the case of Indian National Shipowners Association v. Union of India [2009] 18 STT 212 wherein it is held that the charge on services provided outside India would come into effect only from 18-4-2006 with the insertion of Section 66A in the Finance Act, 1994 and their Lordship had declared Rule 2(l)(d)(iv) as invalid as same cannot charge service tax in absence of any statutory support. The said judgment later upheld by the Hon’ble Supreme Court in the case of Union of India v. Indian National Shipowners [2010] 24 STT 366.
4.1 Per contra, the ld. Spl. Counsel, Shri D.K. Acharya, appearing for the Department, submitted that it is the second round of litigation before this Tribunal. He has submitted that the appellant had filed Bill of Entry having Sl. No. 25 dated 2nd January, 2001 for total value of Rs. 8.82 crores. It is his submission that the said Bill of Entry is not an authenticated one and not necessarily connected with the present case. Advancing reasons he has contended that : (i) as per Schedule 4 of the Contract providing terms of payment by M/s. TISCO to the appellant, 5% of contract price for supply of imported designs and drawings would be payable earlier than three months from contract effective date, (ii) 75% of contract price for supply of imported designs and drawings would be payable upon delivery by the contractor to the purchasers’/engineers’ office in India, (iii) 5% of contract price for supply of imported designs & drawings would be payable after issue of final acceptance certificate, (iv) Letter of Credit for effecting payment to the extent of 80% for imported designs and drawings would remain valid till June, 1999. It is his submission that it is unlikely that 80% of the payment of imported designs and drawings would have been made one and half year before the import of the said designs and drawings as per Bill of Entry dated 2-1-2001.
4.2 Further, he has submitted that the designs and drawings are nothing but system engineering or basic engineering originated outside India for Skin Pass Mill of one million ton per annum.
4.3 He has further submitted that the definition and scope of “Consulting engineer” services as introduced w.e.f. 16-7-1997 has a very wide coverage and the illustrative list of services covered under the said service was circulated by C.B.E. & C. vide letter No. 43/5/97-TRU, 2-7-1997.
4.4 Rebutting the argument of the appellant, that installation and commissioning services are made taxable only from 10-9-2004, he has submitted that the said services are separately made taxable under a new entry and accordingly not taxable under consulting engineer service from that date. But, that does not invalidate the earlier position of taxing it under consulting engineer services, but it only modifies the earlier position as is clear from Para 4 of C.B.E. & C. Circular No. 49/11/2002-S.T., dated 18-12-2002.
4.5 Further countering the arguments that the amendment to Consulting Engineering service in the year 2006 brought within its scope the corporate body which was not earlier in the said definition, he has submitted that the amendment is only clarificatory in nature and that from the very beginning consulting engineer included a natural or juristic or corporate person and hence firm and a corporate body was ab initio included in the scope of the said service. In support of his submission he has referred to the ratio of the Hon’ble High Court of Karnataka in the case of Tata Consultancy Services v. Union of India [2007] 6 STT 258 and Hon’ble High Court of Calcutta in the case of M.N. Dastur & Co. Ltd. v. Union of India [2006] 5 STT 109.
4.6 Further the ld. Spl. Counsel submitted that even though erection, installation and commissioning services became taxable from 10-9-2004 by inserting a specific entry in the Finance Act, 1994, it is incorrect to say that when a new entry is introduced it presupposes that same services were not covered by the existing entry. He has referred to C.B.E. & C.’s Circular dated 2-7-1997 and C.B.E. & C.’s Circular dated 18-12-2002 and submitted that when a new or more specific entry has been created from 10-9-2004, accordingly, commissioning and installation services were though taken out of the scope of the definition of consulting engineer but without invalidating its earlier coverage under the more generic entry of “Consulting Engineer”. He has referred to the decisions of this Tribunal in the case of B. Rama Rao & Co. v. CC,CE&ST [2011] 31 STT 419 and also in the case of Sunil Hi-Tech Engineers Ltd. v. CCE [2010] 24 STT 356 (Mum. – Cestat) (Tribunal).
4.7 He has further submitted that the appellants are though a foreign company incorporated in Tokyo but are liable to Service tax in India notwithstanding that import of services became taxable only w.e.f. 18-4-2006 with the introduction of Section 66A to the Finance Act, 1994. He has submitted that the appellant at the material time had a project office in Jamshedpur and also a representational office in New Delhi and hence they are liable to pay Service tax under the head “Consulting Engineer” as their liaison cum-representational office had been in India for more than one and half decade.
4.8 The ld. Spl. Counsel further submitted that the total value of taxable service is Rs. 15.26 crores and the value of system engineering (drawing & design charges) originating outside India and delivered in India is Rs. 8.82 crores, which had been delivered through the vehicle of imported designs and drawings. Apart from basic engineering, there are some other important services rendered notably training of TISCO’s personnel at supplier’s works at a price. By their very description in the agreement/contract, it is clear that they are all leviable to Service tax under heading “Consulting Engineer” as held by CESTAT in the case of Nokia (I) (P.) Ltd. v. CC [2006] 3 STT 209 (New Delhi) Cestat). Further he has submitted that the scope of “Consulting Engineer” service includes assistance by supplying drawing and design prepared by engineering division as held by the Tribunal in the case of Rampur Engg. Co. Ltd. v. CCE [2006] 5 STT 386 (New Delhi – Cestat). Further he has submitted that in the total taxable value of Rs. 15.26 crores, the sum of Rs. 8.82 crores represents the value of basic engineering or system engineering originating outside India and delivered to TISCO. Further he has submitted that even if the imported drawing and designs be treated as goods and charged to customs duty, it does not mean that the same cannot be charged to other taxes like excise duty in the form of CVD or sales tax in the form of special additional duty. He has referred to the judgment of the Hon’ble Supreme Court in the case of Tamil Nadu Kalyana Mandapam Assn. v. Union of India [2006] 4 STT 308 (SC) wherein it was held that the Service tax on Mandap Keepers and Outdoor Caterers is in pith and substance a tax on services and not a tax on sale of goods despite an element of sale involved in such cases. Further, he has referred the judgment of the Hon’ble Supreme Court in the case of Idea Mobile Communication v. CCE&C [2011] 32 STT 262, Tamil Nadu Kalyana Mandapam Assn. (supra) wherein the decision of the Tribunal that Service tax is not sustainable as sales tax is paid on SIM Cards, was held to be wrong. Further he has submitted that the demand of Service tax is justified as the appellant had rendered 908 man days of consulting engineering, supervision services in mechanical and electrical engineering branches and were having a project office in Jamshedpur and a liaison office in Delhi and having their presence in India for more than one and half decade.
5.1 In his rejoinder, the ld. Advocate for the appellant submitted that the Bills of Entry placed in the Appeal Paper Book at Page 328, would show that the goods were imported by M/s. TISCO and the invoice value is JAP Yen 21120 000, which matches with the invoice raised by the appellant on TISCO for the said drawing and designs. The said Bills of Entry also gives reference to the Invoice No. SPM- SYC-FY dated 6-9-1999, which was the invoice raised by the appellant on TISCO. The invoice also refers to the Contract No. CRMP/CON/SPM/03, which was in dispute in the present case and hence, it is beyond doubt that the Bill of Entry produced by the appellant was with respect to drawings and designs, which were assessed by the Customs Authorities. Further, he has submitted that in similar facts and circumstances of the case, the Tribunal in the case of Solitz Corpn. (supra), held that no Service tax is leviable on designs and drawing received as parcel or through courier services. This view was also followed by the Tribunal in the case of Kirloskar Electric Co. Ltd. (supra) and CCE v. MICO Ltd. (supra). He has also submitted that the supervision activities undertaken by them in terms of the agreement, which is referred to in Clause 1.1.2.4, are not merely supervisory services, but has been undertaken against a broader scope of work i.e. setting up and startup of SPM, which involved physical activities and not just supervision or advisory activity. Further, he has referred to the judgments of the Tribunal in the cases of CST v. Turbotech Precision Engg. (P.) Ltd. [2010] 27 STT 263 (Kar.) and ABB Ltd. v. CST [2011] 31 STT 77 wherein it was categorically held that the services like design, development, installation, commissioning and technology transfer would not fall under the Head “Consulting Engineer” services. Similar view was also taken by the Hon’ble High Court of Karnataka in the case of CST v. Araco Corpn. [2010] 27 STT 193 (Kar.) and by the Tribunal in the case of Nypro Forbes Products Ltd. v. CST [2008] 15 STT 131 (Chennai – Cestat). He has referred to the C.B.E. & C. Circular bearing No. 137/38/2003-CX., dated 13-5-2004, wherein it was clarified by the Board that the charges of errection, installation & commissioning are not covered under the category of Consulting Engineer Services. Further he has submitted that the errection, installation and commissioning services were taxable only from 10-9-2004, which has been clarified by the C.B.E. & C. vide Circular No. 79/9/2004-S.T., dated 13-5-2004.
5.2 The ld. Advocate further submitted that during the relevant period, there had been a confusion regarding taxability of foreign companies and the appellants have also not suppressed any information from the Department. Hence, invoking of extended period of limitation is incorrect. He has referred to the decisions of the Tribunal in the case of CCE v. Global Software Solutions (P) Ltd. [2012] 23 taxmann.com 117 (Chennai – Cestat) and CCE v. A.P.S.M Study Centre [2012] 23 taxmann.com 104 (New Delhi – Cestat). Further, he has submitted that the Tribunal in the case of CCE v. Institut Francais Du Petrole (IFP) [Final order No. ST/404/2011, dated 24-8-2011], held that suppression cannot be assumed against a foreign service provider for invoking the extended period of limitation.
6. Heard both sides at length and perused the records.
7.1 The present issue revolves around the fact that whether the amount of Rs. 15.68 crores received by the appellant from M/s. TISCO during the period from 1-4-1999 to 30-11-2001 for supply & services are liable to Service tax under the category “Consulting Engineer”. The appellant had entered into four different agreements/contracts with M/s. TISCO for setting up of a Skin Pass Mill (SPM) of capacity of 10 lacs MT at Jamshedpur. The Revenue has not disputed two Agreements relating to procurement and supply of various equipments to TISCO. The dispute relates to the total consideration of Rs. 15,26,91,542/- received against Agreement No. CRMP/CON/SPM/03, dated 16-7-1998 and Agreement No. CRMP/CON/SPM/04, dated 6-6-1998. By the Agreement dated 16-7-1998 the appellant was to supply imported designs and drawings to be delivered in India at purchaser’s and Engineer’s Office valued at Japanese YEN 211,200,000 (Rs. 8.86 crores). The said Agreement also stipulates services of supervision of detailed engineering, design and drawing originating in India, supervision of manufacture of indigenous equipment at Indian works, supervision of erection and start-up & commissioning. The second Agreement dated 6-6-1998 relates to supply of indigenous design & drawing to be delivered in India at purchaser’s & engineer’s office valued at Rs. 1,75,79,000/-.
7.2 In the first round of litigation before this Tribunal, the case was remanded to the adjudicating authority observing that as a major part of the demand is in respect of supply of imported designs and drawings for which the appellants filed Bill of Entry at the time of its import treating it as ‘goods’ under the Customs Act, 1962 (similar plea was also raised in respect of designs & drawings originating in India) and the designs and drawings which form part of the contract, being treated as ‘goods’ by the Customs Authorities and were assessed under the Customs Act and accordingly, the same as service is not sustainable and requires re-consideration. No appeal was filed against the said remand Order of the Tribunal.
7.3 In the de novo proceeding, the appellant had submitted copy of the Bill of Entry bearing No. 25 dated 2nd January, 2001. The ld. Adjudicating authority instead of examining the said bill of entry whether it relates to the import of designs and drawings relevant to the Agreements in question and assessed as ‘goods’ falling under Chapter 49 of the Customs Tariff Act, 1975 observed that the said Bill of Entry was assessed by the Customs pursuant to the Tribunal’s Order No. A-602/Cal/2000, dated 12-5-2000 TISCO Ltd. v. CC (Airport) [2001 (130) E.L.T. 327 (Tri – Kol.)] and at no stage, it was an issue before the Customs authority or before the Tribunal in the said proceeding as to whether the supply of drawings and designs is to be treated as supply of goods leviable to Customs duty; or supply of consulting engineering services chargeable to Service tax under Finance Act. We find that the reason advanced by the ld. Commissioner in not examining the said Bill of Entry in its proper perspective, that is whether designs & drawings are assessed as “goods” or otherwise under the Customs Act and pertaining to the Agreements in dispute, is not in conformity with the observation/direction of this Tribunal vide its Order No. A-58/KOL/2010, dated 4-2-2010 [Mitsui & Co. v. CCE&ST [2010] 29 STT 39 (Kol. – Cestat)] and accordingly not sustainable in law.
7.4 The ld. Advocate appearing for the appellants drew our attention to the said Bill of Entry bearing No. annexed at Page 328 of the Paper Book. In the said Bill of entry against the column ‘description of the goods’ it is mentioned as “designs and drawings” and the total invoice value is reflected as J.YEN 211,200,000 (Rs. 8.86 crores) which conforms with the amount shown in the invoices raised by the appellants on M/s. TISCO. Besides, the said Bill of Entry refers to Invoice No. SPM-SYC-FY dated 6-9-1999 and the said invoice also referred to the Contract No. CRMP/CON/SPM/03 dated 16-7-1998. Hence, we are convinced that the said Bill of Entry relates to import of designs and drawings as mentioned in the Contract No. CRMP/CON/SPM/03 dated 16-7-1998 valued at J.YEN 211,200,000 (Rs. 8.86 crores) and assessed as ‘goods’ by the Customs authority classifying it under CHS 4906.00 of CTA, 1975.
7.5 The ld. Spl. Counsel appearing for the Department argued that the said Bill of Entry may not necessarily be connected with the said Contract dated 16-7-1998 as 80% of the payment against imported designs and drawings were made one and half year before import of the drawings and designs as on 2-1-2001. We do not find force in the said argument. The payments were as per the schedule to the Agreements are matters between the parties and its early or late payment contrary to the schedule, cannot have any bearing on the authenticity of the Bill of Entry. It is established by the Appellant that the said Bill of Entry relates to designs and drawings imported by TISCO and it is classified under Chapter Sub-heading 4906.00 treating the same as goods by the Customs authorities. It is immaterial whether it is assessed as ‘goods’ under the direction of the Tribunal in the determination of value of the machinery or otherwise.
7.6 We find that in the case of Solitz Corpn. (supra) where the facts are more or less similar to present one, following an earlier decision viz. Kirloskar Electric Co. Ltd. (supra), the Tribunal has held that drawing and designs ought to be treated as ‘goods’ and the said finding cannot be considered unreasonable. The Hon’ble Supreme Court in the case of Associated Cement Companies Ltd. (supra), has held that drawings, plans, manuals, etc., specified in Chapter 49 of the Tariff Act are thus statutorily regarded as goods attracting a specified rate of Customs duty on their import into India. For better appreciation, the relevant portion of the said Order is reproduced below :
“27. Drawings, plans, manuals, etc., specified in Chapter 49 of the Tariff Act are thus statutorily regarded as goods attracting a specified rate of customs duty on their import into India. There is no challenge to any of the statutory provisions and reading the two Acts together there can be no manner of doubt that what has been imported into India by the appellants, through the courier or otherwise, from their technical collaborators were goods even though the tangible articles so imported contained information or knowledge for use by the appellants.
28. In view of the clear provisions of the Customs Act and the Tariff Act, which have been referred to hereinabove, whenever any goods or movables or tangible articles are imported into this country customs duty is payable. For the purpose of attracting levy it would be immaterial as to what are the types of goods imported or what is contained in them or recorded thereon. The contents will be relevant for the purpose of valuation. Therefore the decisions of this Court relating to the levy of sales tax in cases of works contracts will have no application here.”
7.7 The ld. Spl. Counsel argued that even if the designs and drawing charges are treated as goods and subjected Customs duty, the same also could be assessed to Service tax. In this connection, he has referred to the judgment of the Apex Court in the case of Tamil Nadu Kalyana Mandapam Assn. (supra) wherein it has been held that the Service tax on mandap keeper and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods despite an element of sale involving of such cases. A plain reading of the said judgment, we find that the ratio of the same is not applicable to the facts of the present case as in the said case, their Lordships are confronted with the question whether the Service tax on mandap keeper and outdoor caterers is in pith and substance a tax on services and not a tax on sale of goods or at hire-purchase activities. Their Lordships have come to the conclusion that a tax on services rendered on mandap keeper and outdoor caterers is in pith and substance a tax on services and not a tax on sale of goods or on hire-purchase activities. The ld. Spl. Counsel also referred to the judgment of the Hon’ble Supreme Court in the case of Idea Mobile Communication Ltd. (supra). The issue in that was whether the value of SIM Card would form part of the taxable value for the purpose of levy of Service tax. It is held that SIM Cards are not sold as goods independently from the services provided. They are considered as part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. In the present case, we find that the appellant entered into four different contracts with M/s. TISCO for setting up of a Skin Pass Mill. This project included supply of equipments against two contracts which are not disputed by the Department, whereas the third contract related to supply of designs & drawings procured from Japan and also procured indigenously, had been disputed. The designs & drawings are prepared in Japan and sold to the appellant independently as is evident from the fact that the same are assessed as ‘goods’ under the Customs Act. Similarly, the designs and drawings procured in India are assessable as goods under the Central Excise Act. Hence, the said ratio is not applicable to the facts of the present case.
7.8 In view of the above, and as observed in our earlier remand Order we are of the considered opinion that the designs and drawings which were imported and assessed as ‘goods’, cannot be subjected to Service tax, hence, no Service tax is chargeable on that part of the contract relating to Contract No. CRMP/CON/SPM/03 dated 16-7-1998 attributing towards the value of designs and drawings. We also agree with the ld. Advocate that the value of drawings and designs procured indigenously also stood on the same footing being assessable to Central Excise duty under Chapter 49 of the Central Excise Tariff Act, 1985 and accordingly be treated as ‘goods’, hence cannot be subjected to Service tax.
7.9 Besides, the supply of designs and drawings to M/s. TISCO the other services rendered by the appellant as mentioned in the Agreement dated 16-7-1998 are: supervision of detailed engineering, design and drawing originating in India is valued at J.YEN 15,11,400, supervision of manufacture of indigenous equipment at Indian works erection valued J.YEN 55,85,8900 and start-up & commissioning services valued at J.YEN 35,671700. It is vehemently argued by the appellant that these services are not covered under the scope of the definition of “Consulting Engineer” as was in force ‘during the relevant period i.e. 1-4-1999 to 30-11-2001. It was also disputed that the said amount had been received by them for rendering services by the appellant, a foreign company to M/s. TISCO in India, and hence not taxable prior to 18-4-2006 i.e. before the insertion of Section 66A in the Finance Act, 1994.
7.10 The ld. Commissioner in his findings has observed that the said argument of the appellant does not hold good as during the relevant period, the appellant were having project office and also representational office in the territory of India accordingly, the appellant are liable to Service tax for the services rendered by them to M/s. TISCO. He has reasoned that Section 66A applies in cases where the service provider is located outside India and does not have any office or representative in India. He has observed that it is immaterial whether the said offices relate to the present contract or otherwise.
7.11 We find that the amount of Service tax was proposed to be recovered from the appellants under the second proviso to the sub-rule (1) of Rule 6 of Service Tax Rules, 1994 as was in force during the relevant time, which reads as under :
“Provided further that, in the case of a person who is a non-resident or is from outside India, does not have any office in India and is liable to pay Service tax on taxable services provided in India,-
(i) the service tax thereon shall be paid by such person or on his behalf by any other person authorized by him, who shall submit to the Commissioner of Central Excise in whose jurisdiction the taxable services have been rendered, a return, containing the following details,-
(a) name and address;
(b) name and address of the client to whom the taxable services were rendered;
(c) nature of taxable services rendered;
(d) value of taxable services rendered;
(e) service tax liability on the taxable services rendered.
along with a copy of the bill raised on the client to whom services have been rendered, a copy of the contract or agreement regarding the provision of such services to the client, and a demand draft payable to the Commissioner of Central Excise towards his Service tax liability; and
(ii) the return along with the demand draft shall be submitted within a period of 30 days from the date of raising of the bill on the client for the taxable services rendered, failing which he shall be liable to pay interest, as per the provisions of Section 75 of the Finance Act, 1994 (32 of 1994)”.
7.12 The ld. Advocate has referred to the judgment of Hon’ble Bombay High Court in the case of Indian Shipowners Association (supra) which has been upheld by the Hon’ble Supreme Court reported as Union of India v. Indian National Shipowners – 2010 (17) S.T.R. J57 (S.C.). The Hon’ble High Court in the said case had declared Rule 2(l)(d)(iv) of the Service Tax Rules, 1994 as invalid in absence of any statutory support, which came into existence in the form of Sec. 66A only w.e.f. 18-4-2006. He has further argued that mere presence of Project Office or liaison Office in India would not make any difference as the same cannot be treated as a permanent office for charging the foreign company under the Finance Act, 1994. He has referred to the judgment of the Tribunal in the case of Foster Wheeler Energy Ltd. v. CCE & C, [2007] 9 STT 320 (Ahd. – Cestat), The decision of Hon’ble High Court of Karnataka in the case of Araco Corporation (supra) the judgment of the Hon’ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 158 Taxman 259 and the decision of the Tribunal in the case of CST v. Bosch Rexroth (India) Ltd. [2012] 34 STT 277.
7.13 Countering the said argument, the ld. Spl. Counsel submitted that they had a liaison Office in Delhi and Project Office in Jamshedpur and hence the Service tax is payable by the appellant.
7.14 We have carefully gone through the said judgments. The Tribunal in the case of Bosch Rexroth (India) Ltd. (supra) referring to the judgment of Bombay High Court in Indian National Shipowners Association’s case (supra) and applying the same to the facts observed as under :
“6. Revenue in their memo of appeal have sought to distinguish the Hon’ble Bombay High Court judgment in the case of Ship Owners Association v. UOI, on the ground that in that decision the services were received outside the India, whereas in the present case, the services were received inside the India from the person having his office in India. We do not find any merit in the above distinction being made by the Revenue. Section 66A having been inserted in the Finance Act with effect from 18-4-2006 clearly laying down that recipient of services in India from outside India shall be liable to pay tax, cannot be made applicable retrospectively. We find no merits in the Revenue’s contention. Accordingly, the appeal is rejected. Stay Petition also gets disposed off.”
7.15 We find that on a plain reading of the ratio of the Hon’ble Bombay High Court, which has been later confirmed by the Hon’ble Supreme Court, it is clear that levy of Service tax cannot be enforced on the basis of a Rule in absence of a charging Section in the Finance Act supporting the said Rule. Accordingly, levy and collection of Service tax on the receiver of services in India rendered by a foreign service provider enforced through Rule 2(1)(d)(iv) of Service Tax Rules, 1994 has been held to be unsustainable and invalid in law. The Tribunal in the Bosch Rexroth (India) Ltd.’ case (supra) rejected the argument of the Department that the aforesaid judgment of the Hon’ble Bombay High Court in Indian National Shipowners’ Association case (supra) related to services rendered outside Indian and hence not applicable to services received in India.
7.16 We also find that the Hon’ble Karnataka High Court in the case of Araco Corpn. (supra) has also, inter alia, held that the service provided by a foreign company to an Indian company, cannot be subjected Service tax levy during November, 1998 to December, 2000, the period involved in that case as the charging section levying Service tax applicable to such circumstances had come into force w.e.f. 18-4-2005. Their Lordships have observed as under :
“6. Having heard the counsel for the parties, we have to consider the substantial question of law framed in this appeal as hereunder : Admittedly, assessee is a foreign company. Even if the arguments advanced by Mr. Shashikantha is accepted, sub-section (31) of Sec. 65 of the Act would apply to the services rendered by an Indian as a consulting engineer. In the present case, the dispute is in regard to November, 1998 to December, 2000. As on November, 1998, the word company or ‘Firm’ was not included under the definition of sub-section (31) of Sec. 65 of the Act. Therefore, the contention of Mr. Shashikantha cannot be accepted even if it is considered that sub-section (31) of Sec. 65 of the Act would apply to a service provider of foreign origin. Sec. 66A of the Act has come into force w.e.f. 18-4-2006. If the provision has come into force w.e.f. 18-4-2006, in the absence of the revenue enlightened the court to levy service tax on a foreign company during the relevant assessment year, we are afraid to accept the contention urged by Mr. Shashikantha in order to rely upon Sec. 66A of the Act. If sub-section (31) of Sec. 65 and Sec. 66A of the Act are not applicable, we have no other option than to answer question of law against the revenue and in favour of the assessee. Moreover, question of law raised in this appeal is answered by this court in a connected matter in CEA 11/2007 in the case of M/s. SKF India Ltd. Therefore, answering the question of law against the revenue, we dismiss this appeal.”
7.17 From these judgments, it is clear that levy of Service tax on the service provided by a foreign service provider and availed by an Indian receiver has been introduced by an amendment to Section 66 of Finance Act, 1994 i.e. by inserting a new Section 66A in the Finance Act w.e.f. 18-4-2006. The Service tax, it is held, cannot be charged for services rendered for the period prior to 18-4-2006 by a foreign service provider to a service receiver in India irrespective of the fact whether the service is received in India or outside India on the basis of a Rule prescribed in the Service Tax Rules, 1994. We are in agreement with the said view and hold that no Service tax is payable by the appellant for the services rendered to TISCO during 1-4-1999 to 30-11-2001 alleged to be in the nature of Consulting Engineer. Accordingly, we do not see any reason to go into the merits of other issues viz. whether the services referred to above, are supervisory service or in the nature of technical assistance satisfying the definition of ‘Consultant Engineer’ and the issue of limitation. Consequently, we set aside the impugned Order passed by the ld. Commissioner and allow the appeal filed by the appellant with consequential relief, if any.
