Custom, Excise & Service Tax Tribunal
M/S. Stag Software Private Limited vs The Commissioner Of Service Tax on 4 January, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE Appeal No: ST/231/2007 (Arising out of Order-in-Original No: 33/2007 dated 08.03.2007 passed by the Commissioner of Service Tax, Bangalore.) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. Stag Software Private Limited Appellant Vs. The Commissioner of Service Tax Bangalore Respondent
Appearance S/Shri K.S. Ravi Shankar and N. Anand, Advocates, for the appellant Smt. Sudha Koka, Authorised Representative (SDR), for the Revenue CORAM DR. S.L. PEERAN, HONBLE MEMBER (JUDICIAL) SHRI T. K. JAYARAMAN, HONBLE MEMBER (TECHNICAL) Date of Hearing: 04.01.2008 Date of decision:
FINAL ORDER No._______________________2008 Per Shri T.K. Jayaraman This appeal has been filed against the Order-in-Original No 33/2007 dated 08.03.2007 passed by the Commissioner of Service Tax, Bangalore.
2. The appellant company is engaged in software development and other software services, more importantly, testing of software during its development. Further, the appellant undertakes training customers in software. Revenue proceeded against the appellant on the ground that the testing of software is liable to Service Tax under the category of Technical Inspection & Certification Service as defined in Section 65(108) of the Finance Act. It was also alleged that the appellant was rendering training services, which is liable for Service Tax under the category of Commercial Training and Coaching Service. The Commissioner, after giving them an opportunity of personal hearing, confirmed the Service Tax to the tune of Rs. 52,84,956/- under Section 73 of the Finance Act, 1994 for the period from July, 2003 to September, 2005. He also imposed penalties of (i)Rs. 200/- per day under Section 76; (ii)Rs. 1,000/- under Section 77 and (iii)Rs. 80,00,000/- under Section 78. The appellants are highly aggrieved over the impugned order. Therefore, they have come before this Tribunal for relief.
3. S/Shri K.S. Ravi Shankar and N. Anand, the learned Advocates, appeared on behalf of the appellant and Smt. Sudha Koka, the learned SDR, for the Revenue.
4. We heard both sides.
5. The learned Advocate pointed out that software development and testing is an integral part of software development process. He said that the appellant is basically engaged in software development and when the software is developed, it has always to be tested and this testing is an integral part of the software development. He also drew our attention to the cross appeal filed by the Revenue wherein it is stated that Hence, the two activities though go hand-in-hand for release of a software production and form an integral part of software development are handled separately by different teams and hence are distinct from each other. Further, the learned Advocate drew our attention to the various legal provisions and urged that the software engineering is always exempted from Service Tax. He said prior to 10.09.2004, the activity was exempted under Notification No. 4/99-ST. Presently also, even by definition, the software engineering is exempted in terms of the definition given in Section 65 of the Act particularly under definition of taxable service in Section 65(105) of the Act. The Original Authority, in his order, has relied on the Apex Courts decision in the case of Tata Consultancy Services Vs. State of Andhra Pradesh 2004 (178) ELT 22(SC) which held that software is goods. Since software is goods, after going through the definition of Technical Inspection & Certification service in Section 65(108), which includes the inspection and certification in respect of goods, the Original Authority has come to the conclusion that since the appellant is developing software and which is being simultaneously tested, this process would come under Technical Inspection & Certification Services. The application of the above case-law in this case, according to the learned Advocate, is not correct because the Honble Apex court, in the case cited by the learned Original Authority, was dealing with the case of canned software, which was stored in a medium such as discs, floppy etc. and sold off the shelf in the market. It was being considered whether they are goods or not. However, in the case of the appellant, the software development process was integrated and simultaneously conducted with testing of parameters and the software had not yet become ready or emerged as goods.
5.1. As regards the Service Tax on Computer Training is concerned, the learned Advocate pointed out that the impugned order had wrongly demanded Service Tax of Rs. 11,00,793/- from 2004-05 onwards. It was submitted that the computer training was exempted under Commercial Coaching or Training between 10.09.2004 to 15.06.2005 and the same was made taxable only from 15.06.2005 onwards by virtue of amendment by Notification No. 19/2005-ST dated 07.06.2005. Further, the learned Advocate relied on the decision of the Tribunal in Sunwin Technosolutions Pvt. Ltd. Vs. CCE, Ranchi 2007 (7) STR 700(Tri.-Kolkata) in support of their claim that during the relevant period, there was no liability to tax. It was also mentioned that the appellant had voluntarily paid the Service Tax of Rs. 4,68,039/- on the above service and had also duly registered under the Service tax category on the above services, for the applicable period. Hence, there cannot be any further demand of Service Tax on the above category.
5.2. The learned Advocate further urged that the demands are time barred because there is no evidence that the appellant had evaded duty by suppressing facts. He pointed out that there was no certainty and clarity in the Service Tax law relating to software services. The Tribunal and Courts at various stages have taken divergent and contrary views. In these circumstances, there was lot of confusion and with regard to the taxability in such circumstances, he said that the invocation of longer period is not sustainable.
6. The learned SDR pointed out that since the software is configured as goods in the light of the Apex Courts decision in the case of Tata Consultancy Services (cited supra) and going by the definition of Technical Inspection & Certification Service, definitely, the impugned services are liable for Service Tax under the above category.
7. On a very careful consideration of the entire issue, we find that software engineering itself is completely exempt from Service Tax at all times even at present. When software engineering itself is not liable to tax, software testing, which is an integral part for such development, cannot be brought under tax net in the guise of Technical Inspection & Certification service. Moreover, the learned Advocate has clearly distinguished the facts in the case of Tata Consultancy Services(supra), wherein the Honble Apex Court was dealing with canned software, which was ready for sale off the shelf. However, in the present case, the testing goes hand in hand with the development and this is not a case of canned software, which can be treated as goods. Therefore, in view of the above, we hold that the demand of Service Tax on software testing in the category of Technical Inspection & Certification Service is not correct. The same is liable to be set aside.
7.1. As regards the computer training, it is very clear that the computer training was exempted under Commercial Coaching or Training between 10.09.2004 to15.06.2005 and we clearly see that the same was made taxable only from 15.06.2005 onwards by virtue of amendment by Notification No.19/2005-ST dated 07.06.2005. The appellants have stated that w.e.f. 15.06.2005, they had paid the Service Tax and they had already got registered under the category of Commercial Training or Coaching. Therefore, for the period during which they were exempted, Service Tax cannot be demanded. Moreover, we also appreciate that there is no ground for invoking the longer period in demanding the Service Tax, as the allegation of suppression with intention to evade payment of tax has not been clearly established. In these circumstances, we set aside the impugned order and allow the appeal with consequential relief, if any.
(Operative portion of the order pronounced in open Court on conclusion of hearing on 04.01.2008) (T.K. JAYARAMAN) Member (T) (S.L.PEERAN) Member (J) /pr/