Design Charges for manufacture of moulds cannot be subjected to tax as consideration for service – SC

Design Charges for manufacture of moulds cannot be subjected to tax as consideration for service where moulds are manufactured and supplied

Editor:

The Supreme Court in Commissioner of Central GST & CE Vs Ramkrishna Forgings Ltd (Civil Appeal Diary Nos. 20030/2024 decided on 12.07.2024) has dismissed the Special Leave Petition filed by Revenue against the verdict of the Division Bench of the Kolkata Tribunal (CESTAT) in M/s Ramkrishna Forgings Limited Vs CCE & ST Jamshedpur (in S.T. Appeal No.76171/17) and (ORDER NO – FO/ST/A/75921/2018 & MO/75589/2018 DATED 02.05.2018).

The Tribunal had earlier confirmed that design charges collected for manufacture of moulds and used in the factory of manufacturer for manufacture of forgings which were to be supplied to customer, could not be subjected to service tax as charges for manufacture of moulds was liable to duty of central excise. Moulds were manufactured in the factory based on drawings supplied by customer. The view of the Revenue was that design charges were liable to service tax under “design services”. Revenue had filed SLP before the Supreme Court based on the verdict of the Tribunal which was earlier against them. This SLP has now been dismissed and view of the Tribunal prevails.

This would be relevant in the context of GST too when it comes to classification of such arrangements. Would the supply be one of goods or service can be answered by relying on the above verdict.