Import of drawings and designs exigible to both Customs Duty and Service Tax

by | Jun 30, 2020 | Insight

This is to apprise you regarding recent decision of CESTAT, Mumbai in the case of Nuclear Power Corporation of India Limited v. CCE, 2020-VIL-265-CESTAT-MUM-ST. In this case, the Tribunal held that drawings and designs imported from overseas supplier are exigible to Service Tax even if the same were subject to Customs Duty at time of import.

Facts:

The taxpayer imported engineering drawings and designs from an overseas supplier for using them in implementation of a project in India. Since these were imported in physical form, the taxpayer treated these items as goods and paid Customs Duty on full value thereon. The department contended that the taxpayer is also liable to pay Service Tax under the category of Consulting Engineering Services.

Decision:

The taxpayer relied upon decision of Supreme Court in the case of Associated Cement Company Limited v. CC, 2001-VIL-13-SC-CU (‘ACC case’) to contend that designs imported in physical form, qualify as goods and subject to Customs Duty. Hence, once Customs Duty is payable, no Service Tax would apply.

The Tribunal rejected the taxpayer’s contention and held as under:

  • Levy of Customs Duty does not change character of the imported items. In the instant case, imported items were univocally and clearly a service in terms of the agreement entered into with the overseas supplier.
  • ACC case is not applicable to the instant case as the same dealt with valuation of Customs Duty and not leviability of Service Tax.

NITYA Comments: 

This judgement is correct while upholding levy of both Customs Duty and Service Tax on imported drawings & designs. The Supreme Court in ACC case and other cases, held that where intangible property is put on a physical medium, they become goods. To that extent, levy of Customs Duty was correct. At the same point of time, the underlying transaction between the overseas supplier and the taxpayer was provision of engineering service. Therefore, the same qualified as service as well and Service Tax was leviable on the same. This is a situation similar to software in medium which attracted both VAT and Service Tax prior to introduction of GST.

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