Custom, Excise & Service Tax Tribunal
Dassault Systemes Simulia Pvt Ltd vs Service Tax - Chennai on 24 March, 2023
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 269 of 2011
AND
Service Tax Appeal No. 270 of 2011
(Arising out of Orders-in-Appeal No. 21 & 22/2011 (MST) dated 08.03.2011 passed by
the Commissioner of Central Excise (Appeals), 26/1, Mahatma Gandhi Road,
Nungambakkam, Chennai - 600 034)
M/s. Dassault Systemes Simulia Private Limited : Appellant
(Earlier known as 'M/s. Abaqus Engineering (I) Pvt. Ltd.')
ASV Ramana Towers, 10th Floor,
37 & 38, Venkatnarayana Road,
T. Nagar, Chennai - 600 017
VERSUS
The Commissioner of Central Excise and Service Tax : Respondent
692, M.H.U. Complex, Nandanam,
Chennai - 600 034
APPEARANCE:
Ms. Shrayashree T., Learned Advocate for the Appellant
Shri M. Ambe, Learned Deputy Commissioner for the Respondent
CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
FINAL ORDER NOs. 40193-40194 / 2023
DATE OF HEARING: 14.03.2023
DATE OF DECISION: 24.03.2023
Order : [Per Hon'ble Mr. P. Dinesha]
These appeals are filed by the assessee against the
common Orders-in-Appeal No. 21 & 22/2011 (MST) dated
08.03.2011 passed by the Commissioner of Central Excise
(Appeals), Chennai.
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Appeal No(s).: ST/269 & 270/2011-DB
2. Brief facts, as could be gathered from the Show
Cause Notices, which are relevant for our consideration,
are that the appellant is engaged in the sale of software
programme "Abaqus" to various customers. There was an
audit conducted by officers of the Internal Audit Group of
Service Tax Commissionerate, Chennai, wherein they
appeared to have ascertained that the appellant's Head
Office was at U.S.A., from whom they purchase the
software, enter into an agreement/contract with Indian
customers for maintenance and enhancement of the
software sold by them and that the appellant had incurred
expenditure in foreign currency towards the purchase. The
Show Cause Notices reveal that the appellant offered
various licence types to their customers and the revenue
generated therefrom were duly reflected in their balance-
sheet as Annual, Paid-up, MES and Academic and from the
break-up details that were available from the appellant's
balance-sheet, it was ascertained that the expenses
related to Academic, Paid-Up Annual And Monthly, were
related to the purchase of software and MES-ME related to
maintenance, enhancement and support of the software
provided by the foreign companies to the appellant.
3.1 The above facts appear to have weighed in the mind
of the Revenue that the same constituted management,
maintenance or repair service with effect from 10.07.2004
and that therefore, the appellant being the recipient in
India was liable to pay Service Tax under reverse charge
mechanism in terms of Section 66A of the Finance Act,
1994 read with Rule 2(i)(d)(iv) of the Service Tax Rules,
1994.
3.2 To quote the Show Cause Notice: -
"4.0 It appears that such service provided by the
foreign company in respect of the software imported
by the assessee falls under the category of
management, maintenance or repair services with
effect from 10.07.2004. As the expenses incurred by
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Appeal No(s).: ST/269 & 270/2011-DB
the assessee towards maintenance service relates to
services provided by a person from a country other
than India, it appears that the recipient in India is
liable to pay the Service Tax under the reverse
charge mechanism in terms of Section 66A of the
Finance Act read with Rule 2(i)(d)(iv) of the Service
Tax Rules, 1994."
3.3 This prompted the issuance of Show Cause Notices,
as detailed in the table below, for which the extended
period of limitation came to be invoked by alleging that the
"...assessee neither intimated the Department on the
expenditure incurred by them in foreign currency, indicate
such amount of expenditure in their ST-3 returns or in any
manner..." which, according to the Revenue, amounted to
suppression of facts with intent to evade payment of
Service Tax.
Sl. Show Cause Date Period OIO No.
No. Notice No. involved & Date
1. 312/2009 14.08.2009 01.04.2006 to 23/2010
31.03.2008 dt. 09.03.2010
2. 417/2009 06.10.2009 2008 to 2009 24/2010
dt. 09.03.2010
4. Seriously aggrieved by the allegations and proposals
in the Show Cause Notices, it appears that the appellant
approached the Hon'ble High Court of Judicature at Madras
and thereafter, as per the directions of the Hon'ble High
Court, it appears that they chose to file detailed replies to
the Show Cause Notices and the gist of their replies could
be summarized as below:
4.1 The appellant are the dealers in computer software
and also an authorized dealer for M/s. Abaqus Inc., U.S.A.
(now known as 'DS Simulia Corp') and that they are the
sole distributor and supplier of the Abaqus software in
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Appeal No(s).: ST/269 & 270/2011-DB
India. The said Abaqus software was made available by
them to the customer in India after such customer enters
into software licence agreement with DS Simulia Corp.
4.2 They purchase the said software from the foreign
company in U.S.A and enter into various types of
agreements with purchasers in India, which entitle such
purchasers to the Abaqus software and depending on the
nature of the agreement, such purchaser would also
become entitled to periodical upgrades, maintenance,
enhancement and support.
4.3 When a purchase order was received from the
customer, the same was forwarded by the appellant to the
foreign company.
4.4 The situation was different for the period prior to
May 2006 as compared to the period post May 2006.
During the period prior to May 2006, all software as well as
periodical upgrades, maintenance and other activities were
performed through the medium of a CD, which was
imported by the appellant and thereafter, sold to the
customers in India.
4.5 However, post May 2006, the sale of the software in
question as well as its upgrades, maintenance,
enhancement and support were done through electronic
downloading only. Upon receipt of such purchase order, the
same was forwarded to the US company and the US
company, thereafter, provided the password and the
internet site address through which a customer / purchaser
could receive his software, which could then be
downloaded into his computer and be used later on for his
own purposes.
5. In their reply, the appellant had also taken a very
strong objection to the invoking of extended period
claiming that the alleged expenditure in foreign currency
towards purchase, etc., of Abaqus software were picked up
by the audit team during the course of verification of the
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Appeal No(s).: ST/269 & 270/2011-DB
appellant's balance-sheets, etc., which were all public
documents; that there was no obligation on the part of the
appellant to intimate the Department as to the incurring of
expenditure in foreign currency and hence, the above, per
se, would not constitute suppression of facts.
5.1 They have expressed their bona fide belief that
maintenance of computer software was not liable to
Service Tax as the Explanation to Section 65 (64) of the
Act was introduced with effect from 01.06.2007 only.
5.2 The proposal in the Show Cause Notices was made
to demand Service Tax on the basis of Section 66A ibid.
read with Rule 2(i)(d)(iv) ibid., but that Section 66A was
introduced in the statute book vide the Finance Act, 2006
with effect from 18.04.2006 only.
5.3 Taxation of Services (Provided from Outside India
and Received in India) Rules, 2006 came into effect vide
Notification No. 11/2006-S.T. dated 19.04.2006, which,
when read in juxtaposition to Rule 3(ii) of the Rules, would
indicate that the liability would arise only when the service
is performed in India; that in their case, the foreign
company having not performed the service of maintenance
of software in India, whereas the same having been
rendered/provided through internet, perhaps up to the
insertion of the second proviso to the said Rule 3 (inserted
with effect from 01.03.2008 vide Notification No. 06/2008-
S.T. dated 01.03.2008), there would not be any Service
Tax liability on them.
6. In view of the above discussions, the appellant had
requested for dropping of the proposals made in the Show
Cause Notices.
7.1 Both the Show Cause Notices were considered for
common adjudication and the Adjudicating Authority, after
going through the reply filed by the appellant, vide Order-
in-Original Nos. 23 & 24/2010 dated 09.03.2010, has
proceeded to confirm the demands, as proposed in the
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Appeal No(s).: ST/269 & 270/2011-DB
Show Cause Notices. In the Order-in-Original, the
Adjudicating Authority has accepted the appellant's
contention that the Service Tax was not liable to be paid
for the period up to 18.04.2006. For the subsequent
period, the Adjudicating Authority has held that the service
in question was rendered only in India and therefore, was
covered under the first proviso to Rule 3(ii) of the Taxation
of Services Rules, 2006 ibid. The lower authority has
accepted the facts and contentions as to the supply of
software by the foreign company to the customer in India,
but holds that only after downloading the software could
the services be said to have been used by the customer
and no part of the service activity was directly provided
from the foreign country through internet. In other words,
according to him, the Abaqus software was very much
available in India and the password and the internet site
address, which are received by the appellant from the
foreign company, was only forwarded within India to the
customers who use such password and internet site for
downloading the service.
7.2 With regard to invoking the extended period of
limitation, the Adjudicating Authority has not accepted
their plea for the reason that the appellant had not
declared any details of the expenditure incurred by them
in foreign currency in respect of the maintenance service
received by them from the foreign company.
8. Aggrieved by the above order, the appellant
preferred appeals before the First Appellate Authority, who
vide common impugned Orders-in-Appeal has upheld the
demands raised in the Order-in-Original, thereby rejecting
the appeals filed by the appellant. It is against this common
Orders-in-Appeal that the present appeals have been filed
before this forum.
9. Heard Ms. Shrayashree T., Learned Advocate for the
appellant and Shri M. Ambe, Learned Deputy
Commissioner for the Revenue.
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Appeal No(s).: ST/269 & 270/2011-DB
10.1.1 The Learned Advocate for the appellant would
submit at the outset that there was no service received by
the appellant, as alleged in the Show Cause Notices, much
less any maintenance or repair service; that the appellant
would only receive the password and the website address,
which would be promptly forwarded to the customer, who
becomes the owner of the software namely, Abaqus, and it
is the customer who also receives and uses the service of
maintenance and repair and thus, it only involves mere
sharing of password and website address, which per se
does not fall under the definition of "management,
maintenance or repair" as defined under Section 65 (64) of
the Finance Act, 1994.
10.1.2 She would contend that even if it is to be held
that the above service is liable to Service Tax under Section
65 (64) ibid., the liability would arise only from 01.03.2008
onwards as the service, if any, was provided through the
internet from the foreign entity to the appellant, which was
inserted by way of amendment to Rule 3(ii) to the Taxation
of Services Rules, 2006, applicable with effect from
01.03.2008.
10.2 She would further contend that, in any case, even if
the alleged service is treated as having been received from
the foreign entity by the appellant, the same would be an
input service as the same is forwarded to the customer and
since the appellant pays the tax on outward supply of
service, it would entitle them to claim CENVAT Credit of the
same, which would make the situation revenue neutral.
10.3 The Learned Advocate would also contend that there
was no fraud, suppression, etc., with regard to the non-
payment of Service Tax as the only allegation by the
Revenue is the non-declaration of any details of
expenditure incurred by the appellant in foreign currency,
which is not the requirement under Section 73(1) of the
Finance Act, 1994.
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Appeal No(s).: ST/269 & 270/2011-DB
11. Per contra, the Learned Deputy Commissioner for
the Revenue placed heavy reliance on the findings of the
lower authorities.
12. We have heard the rival contentions and we have
also gone through the documents placed on record,
including the regional support agreement.
13. After hearing both sides, we find that the issues to
be decided by us are as under: -
(1) Whether the Revenue was justified in demanding
Service Tax from the appellant under the category
of 'management, maintenance or repair' service? ;
(2) Revenue neutrality;
(3) Whether the Revenue was correct in invoking the
extended period of limitation?
14. We note that the following Sections/Rules are
relevant:
15. Section 65 (64) of the Finance Act, 1994 reads as
under: -
During the period from 01.05.2006 to 01.06.2007
"(64) "management, maintenance or repair" means any
service provided by --
(i) any person under a contract or an
agreement; or
(ii) a manufacturer or any person authorised
by him, in relation to, --
(a) management of properties, whether
immovable or not;
(b) maintenance or repair of properties,
whether immovable or not; or
(c) maintenance or repair including
reconditioning or restoration, or servicing of
any goods, excluding a motor vehicle;"
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Appeal No(s).: ST/269 & 270/2011-DB
During the period from 01.06.2007 to 16.05.2008
"(64) "management, maintenance or repair" means any
service provided by --
(i) any person under a contract or an
agreement; or
(ii) a manufacturer or any person authorised
by him, in relation to, --
(a) management of properties, whether
immovable or not;
(b) maintenance or repair of properties,
whether immovable or not; or
(c) maintenance or repair including
reconditioning or restoration, or servicing of
any goods, excluding a motor vehicle;
Explanation. -- For the removal of doubts, it is hereby
declared that for the purposes of this clause, "goods"
includes computer software"
For the period after 16.05.2008
"(64) "management, maintenance or repair" means any
service provided by --
(i) any person under a contract or an
agreement; or
(ii) a manufacturer or any person authorised
by him, in relation to, --
(a) management of properties, whether
immovable or not;
(b) maintenance or repair of properties,
whether immovable or not; or
(c) maintenance or repair including
reconditioning or restoration, or servicing of
any goods, excluding a motor vehicle;
Explanation. -- For the removal of doubts, it is hereby
declared that for the purposes of this clause, --
(a) "goods" includes computer software;
(b) "properties" includes information technology
software;"
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Appeal No(s).: ST/269 & 270/2011-DB
16. Section 66A of the Act reads as under: -
"Section 66A. Charge of service tax on services received
from outside India. --
(1) Where any service specified in clause (105) of section
65 is, --
(a) provided or to be provided by a person who has
established a business or has a fixed establishment from
which the service is provided or to be provided or has
his permanent address or usual place of residence, in a
country other than India, and
(b) received by a person (hereinafter referred to as
the recipient) who has his place of business, fixed
establishment, permanent address or usual place of
residence, in India,
such service shall, for the purposes of this section, be
taxable service, and such taxable service shall be
treated as if the recipient had himself provided the
service in India, and accordingly all the provisions of this
Chapter shall apply :
Provided that where the recipient of the service is an
individual and such service received by him is otherwise
than for the purpose of use in any business or commerce,
the provisions of this sub-section shall not apply :
Provided further that where the provider of the service
has his business establishment both in that country and
elsewhere, the country, where the establishment of the
provider of service directly concerned with the provision
of service is located, shall be treated as the country from
which the service is provided or to be provided.
(2) Where a person is carrying on a business through a
permanent establishment in India and through another
permanent establishment in a country other than India,
such permanent establishments shall be treated as
separate persons for the purposes of this section.
Explanation 1. -- A person carrying on a business through
a branch or agency in any country shall be treated as
having a business establishment in that country.
Explanation 2. -- Usual place of residence, in relation to
a body corporate, means the place where it is
incorporated or otherwise legally constituted.
[(3) The provisions of this section shall not apply with
effect from such date as the Central Government may, by
notification, appoint."
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Appeal No(s).: ST/269 & 270/2011-DB
17. Rule 3 (ii) of the Taxation of Services (Provided from
Outside India and Received in India) Rules, 2006 is
reproduced below:-
"3. Taxable services provided from outside India and
received in India.- Subject to section 66A of the Act,
the taxable services provided from outside India and
received in India shall, in relation to taxable
services‚-
.....
[(ii) specified in sub-clauses (a), (f), (h), (i), (j), (l),
(n), (o), (w), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zz), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzl), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzk), (zzzzl) and (zzzzo) of clause (105) of section 65 of the Act, be such services as are performed in India:] Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder;
Provided further that where the taxable services referred to in sub-clauses (zzg), (zzh) and (zzi) of clause (105) of section 65 of the Act, are provided in relation to any goods or material or any immovable property, as the case may be, situated in India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed in India, shall be treated as the taxable service performed in India;"
The second proviso to Rule 3(ii) was inserted vide Notification No. 06/2008-S.T. dated 01.03.2008.12
Appeal No(s).: ST/269 & 270/2011-DB
18. We find that the first issue, on merits, lies on a very narrow compass. It is the case of the Revenue that the software for the service of maintenance or repair was very much available in India and as and when the password and internet address was received by the appellant from the foreign company, the same was forwarded within India to the customers, for downloading the service. Admittedly, the provider of service is a foreign entity who would only upload the programme on to the website, provide the internet website address and a password for the same.
19.1 Section 66A is the charging section under reverse charge mechanism on the services provided or to be provided by a person who is not having a permanent address or usual place of business or residence in a country other than India; and received by a person having business or place of residence, in India.
19.2 Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, as the name itself indicates, shall apply for services provided from outside India and received in India, when Section 66A ibid is applicable. There is no difficulty for this proposition as the very Rule 3 ibid. starts with "subject to Section 66A of the Act...".
19.3 A conjoint reading of the above provisions points only to the fact that they shall apply when services are "provided from outside India", and not if the services are provided by a person in India, to any other person in India. This follows, therefore, that both the statutory provisions would apply only when the location of the service provider is outside India and the recipient is located in India.
20.1 Further, the Adjudicating Authority has negated the claim of the appellant that it is the second proviso to Rule 3(ii) of the Taxation of Services Rules ibid. that would apply, by holding that the software which was supplied by the foreign company was very much available in India upon 13 Appeal No(s).: ST/269 & 270/2011-DB its receipt by the appellant, which was only thereafter forwarded within India to the customers. We have seen the second proviso supra, which is extracted for the sake of convenience at paragraph 17 of this order, and it is the second proviso which specifically refers to the taxable services inter alia referred to in sub-clauses (zzg), (zzh) and (zzi) of clause (105) of Section 65 of the Act, which are provided in relation to "any goods...". It is in the second proviso that we see the reference, inter alia, to the service provided in relation to any goods. There is no dispute here that the software is treated as 'goods' and the alleged service albeit provided through internet, but performed in India.
20.2 Therefore, to say that the software was available in India, with the appellant and hence the provision of service was from India only, as observed by the Adjudicating Authority, runs counter to the demand of Service Tax under reverse charge mechanism within the meaning of Section 66A ibid. read with Rule 3 (ii) of the Taxation of Services Rules ibid.
21. In view of the above discussions, we are of the clear view that the appellant could not have been fastened with the Service Tax liability under management, maintenance or repair service for the reason that there is no document placed on record to negate the appellant's claim that they have not rendered any service in India and the Revenue has also not been able to place anything on record in their support to establish that the appellant had rendered nothing but management, maintenance or repair service.
22. We are not deciding the issue of revenue neutrality since the same depends on the facts of each case, as held by the Learned Larger Bench of the CESTAT in M/s. Jay Yuhshin Ltd. v. Commissioner of Central Excise, New Delhi [2000 (119) E.L.T. 718 (Tribunal - LB)] and the Hon'ble Apex Court in the case of M/s. Star Industries v.
14Appeal No(s).: ST/269 & 270/2011-DB Commissioner of Customs (Imports), Raigad [2015 (324) E.L.T. 656 (S.C.)].
23. We are also not deciding the issue insofar as it relates to invoking of extended period of limitation as the same is academic.
24. In the result, the appeals are allowed on merits, with consequential benefits, if any, as per law, as indicated above.
(Order pronounced in the open court on 24.03.2023) Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) Sdd