Custom, Excise & Service Tax Tribunal
Ciber Sites India Pvt Ltd vs Bangalore Service Tax-Ii on 18 February, 2025
ST/72/2010
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 72 of 2010
(Arising out of Order-in-Original No.23/2009 dated 18.11.2009
passed by the Commissioner of Central Excise, Bangalore.)
CIBERSites India Private Ltd.
5th Floor, Tower 'D' Appellant(s)
IBC Knowledge Park,
4/1, Bannerghatta Road,
Bangalore - 560 029.
VERSUS
The Commissioner of Central
Excise-II Respondent(s)
Queens Road, Bangalore - 560 001.
APPEARANCE:
Shri N. Anand, Advocate, for the Appellant Shri Rajesh Shastry, Suptd. Authorised Representative for the Respondent CORAM:
HON'BLE MR. P. A. AUGUSTIAN, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20171 / 2025 DATE OF HEARING: 06.02.2025 DATE OF DECISION: 18.02.2025 PER : R. BHAGYA DEVI The appellant M/s. CIBER Sites India Pvt. Ltd. has filed this appeal against Order-in-Original No. 23/2009 dated 18.11.2009 passed by the Commissioner of Central Excise, Bangalore.
2. The appellant is engaged in the development of software and render services under the category of Consulting Engineering, Management Consultancy, Manpower Recruitment and Supply Agency Services. On investigation, it was found that Page 1 of 9 ST/72/2010 the appellant was not discharging applicable service tax on Manpower Supply Service and hence, show-cause notice came to be issued. The Commissioner on examining the agreements of the appellant with M/s. Philips Electronics India Ltd., which deals with fixed price project and time and material project, observed that in the case of time and material project, it was a case of manpower supply and hence, they were liable to pay Service Tax under that category. The impugned order also invoked suppression on the ground that the appellant knowingly mis- declared the service as 'Consulting Engineer Service' instead of classifying the same under 'Manpower Recruitment and Supply Agency service'. Accordingly, confirmed the Service Tax demand of Rs.69,31,428/- for the period June 2005 to March 2007 along with interest under Section 75 of the Finance Act, 1994. And also imposed penalties under Section 76, 77 and 78 of the Finance Act, 1994.
3. The learned counsel for the appellant submitted that the appellant is a 100% EOU / STPI unit and is engaged in the business of information technology services. They had registered themselves under the category Consulting Engineering Services and as per exemption Notification No.4/1999-ST dated 28.02.1999 which was in force till 10.09.2004, taxable service by a consulting engineer in relation to computer software was exempted from payment of service tax. Thereafter, 'Consulting Engineer' definition was amended with effect from 16.05.2008 to exclude computer software services from the scope of taxable service, since with effect from 16.05.2008 Information Technology Software Service (ITSS) was brought into effect as a separate service. Hence, their declaration as 'Consulting Engineer' was bona fide and tax was not paid in view of the exemption provided up to 16.05.2008.
3.1 It is also submitted that there is no difference between fixed price project and time and material project, both are in relation to computer software, where the deliverables are Page 2 of 9 ST/72/2010 defined in fixed price project; while the same are not defined in the case of time and material project. Merely because the deliverables are not defined, it cannot be construed as manpower supply in as much as ultimately the service rendered is computer software service. Also, relies on the decision in the case of CIT vs. Information Architects: 2010 (322) ITR 1 (Bom.) and Cognizant Tech Solutions (I) Pvt. Ltd. vs. Commissioner: 2010 (18) STR 326 (Tri.-Che.).
3.2 With regard to suppression, it is submitted that the appellant was under bona fide belief and classified the services under the 'Consulting Engineer' and claimed the benefit of the Notification which was clearly mentioned in their ST-3 returns filed before the Department. In the ST-3 returns, they have clearly mentioned as exempted services and accordingly, claims that they cannot be alleged with suppression or misdeclaration. Relied on the decision rendered by the Hon'ble Supreme Court in the case of Continental Foundation Joint Venture vs. CCE:
2007 (216) ELT 177 (SC); CCE vs. Chemphar Drugs and Liniments: 1989 (40) ELT 276 (SC); and Densons Pultretaknik vs. CCE: 2003 (155) ELT 211 (SC).
4. The learned Authorised Representative for the Revenue relied on decision in the case of Aztecosoft Ltd. vs. Commissioner of Central Excise, Bangalore: (2024) 23 Centax 99 (Tri.-Bang.) wherein this Tribunal in an identical case vide Final Order No.20528/2024 dated 3.7.2024 held that the services rendered by the appellant, in the case of time and material projects, was considered as manpower supply service, hence, the impugned order needs to be sustained. It is also submitted that in the case of Future Focus Infotech (P) Ltd. vs. CST, Chennai: 2010 (18) STR 308 (Tri.-Chennai), similar agreements were held to be Manpower Recruitment and Supply Agency Service.
Page 3 of 9ST/72/2010 4.1 With regard to suppression, it is stated that the appellant was aware of the fact that the services rendered by them was manpower supply service but intentionally misrepresented the fact that it was consulting engineer service hence, the extended period of limitation is invokable.
5. Heard both sides. As far as the merits of the case is concerned, it is no more res integra in as much as the agreements with M/s. Philips Electronics India Ltd. in the present case was similar to the agreement entered by M/s. Aztecsoft Ltd. with M/s. Philips Electronics India Ltd. and the issues are also identical with regard to Fixed Price Projects and Time And Material Projects rendered by the appellant and this Tribunal on examination of these agreements had clearly held that the services rendered by the appellant is nothing but a 'Manpower Recruitment and Supply Agency service'. The observations of the Tribunal are as follows:
"6.2. Let's examine the projects. The Master Services Agreement entered into between the appellant and M/s. Philips Electronics India Limited on 7th December 2005 states that the appellant had experience in developing software related to embedded software, device programming, functional verification, system programming and multimedia. It also states that the appellant had sufficient expertise and resources to develop and provide the services specified in the purchase orders in connection with the development of various software/hardware applications. In the Agreement at clause 1(f) the "Fixed Price Project" is defined as 'a project undertaken for a fixed fee and under which the project is controlled by Aztec the appellant and Deliverables (Items specified in the purchase orders) are specified in the Statement of Work (SOW) for the same'. At clause 1(g) of the same agreement "Time and Materials Project" is defined as 'a project under which Aztec the appellant has provided its personal to provide services on an effort basis and under which the project is controlled by Philips and no Deliverables are specified in the SOW for the same.' From the above definitions, it is very clear that the 'Fixed Price Project' is controlled by the appellant and all the deliverables are specified in the Statement of Work (SOW) while in the case of 'Time and Materials Projects' the appellant only provides personnel where the Page 4 of 9 ST/72/2010 project is controlled by their client M/s. Philips Electronics India Limited and there are no deliverables specified in the Statements of Work. In view of the above, the appellants claim that both the projects are one and same cannot be accepted.
6.3. From Clause 2(h) of the same agreement under 'Testing and Acceptance', it is seen that in the case of 'Fixed Price Projects' the payments are based on acceptance of the deliverables after testing and subject to payment terms in the Statement of Work (SOW). While the payments in 'Time and Material Projects' billing will be proportionate for resources employed for less than a month and it will commence only after commencement of staff. Under clause 3(b), it is seen that in the case of 'Fixed Price Project's along with the personnel the day-to-day activities are clearly specified in the purchase orders; while in the case of 'Time and Materials Project', the appellant has to only verify the technical and work history of the personnel. And as seen from clause 3(b)(iii), the appellant is to furnish a staffing plan specifying the details of the skills, experience and qualification of the personnel to be assigned to their client. As per Clause 7(a) under payments, it is mentioned that each SOW shall contain either on a fixed fee or time and material terms. In case of 'Fixed Price Projects', the payment is based on the deliverables associated with the relevant milestones as specified in the SOW. However, in the case of 'Time and Material Projects', the payments are monthly for each hour of work actually spent performing the services during such month. As seen from the invoices placed on record, it is seen that in the case of 'Time and Materials Project', the name of the personnel and the number of hours spent by them is specified and against each personnel, the monthly payments are also specified. For instance, in the purchase order No.2006868 dated 22.02.2006, the engineering service charges of Shri Subbarayadu. G is shown as Rs.81,000/- for January 2006 for 20 days and Rs.90,000/- each for February 2006 to April 2006 and in total Rs.3,51,000/- is paid to Shri Subbarayudu. G. Thus, from the above clauses of the Agreement, it is categorically clear that the 'Fixed Price Project' is for software services rendered by the appellant to their client while 'Time Material Project' deals with providing of personnel. Therefore, the claim of the Revenue that this is only a manpower service being provided by the appellant is to be accepted. Even the payment terms also clearly establish that the payments in case of 'Time Material Projects' is only based on the man hours of the personnel supplied by the appellant Page 5 of 9 ST/72/2010 and hence, there is no doubt that in these projects, the services rendered by the appellant are to be classified as manpower services only.
6.4. The decisions relied upon by the appellant are not relevant as in the case of CIT v. Information Architects (supra), the Hon'ble Supreme Court was dealing with the question whether the assessee was eligible for deduction under Section 80HHE of the Income Tax Act. In the case of Cognizant Tech Solutions (I) Pvt Ltd v. Commissioner (supra), the facts are entirely different as the project undertaken by the appellant therein was to provide for overall management of the project including the specialized functional services as is done in the present case, in the case of 'Fixed Price Projects'. The 'Time Material Projects' clearly proved that it is only a 'man power supply' and the decisions relied upon by the Revenue in the case of M/s. Coromandel Infotech India Ltd. Vs Commissioner of GST & CE, Chennai South (supra) and M/s. Future Focus Infotech Pvt Ltd Vs Commissioner of C.Ex (ST), Chennai-IV (supra) clearly proves that the activities under taken by the appellant fall under the man power supply and the Tribunal has observed as follows:
"12. We find that the arguments advanced on behalf of the appellants are mainly based on the various clauses in the agreements executed between them and their clients namely TCS and Infosys. We are of the view that not only the wordings of these clauses are to be considered but also how different clauses of the contracts actually operate have to be seen. We find that the appellants are supplying various skilled personnel to TCS and Infosys to work on software projects undertaken by TCS and Infosys from their respective clients. The personnel deputed by the appellants appear to be working at the site of the clients of TCS and Infosys or in the premises of TCS and Infosys. There is no evidence produced before us to indicate that any of the software projects undertaken by TCS and Infosys from their respective clients has been sub-contracted to the appellants or that the appellants are working on any such project on their own. What has emerged clearly is that the appellants have deputed skilled personnel including computer engineers to work under the supervision and control of TCS and Infosys personnel in-charge of projects undertaken by TCS and Infosys. The appellants are Page 6 of 9 ST/72/2010 getting paid in terms of the man hours for the persons deputed to work under the control and supervision of TCS and Infosys."
In the instance case as already discussed above, the skilled personnel have been supplied by the appellant to their clients and the payments are also based on the man hours for the persons deputed by the appellant.
In view of the above, we do not find any reason to disagree with the decision and therefore, the demand of service tax as manpower supply service is upheld.
6. With regard to suppression, we find that appellants have been filing regularly ST-3 returns which is placed on record by the appellant, it is seen that appellant had clearly declared 'amount billed for exempted services other than export' which now the Revenue has confirmed as 'Manpower Recruitment and Supply Agency Service'. The learned counsel has also referred to the definition of 'Consulting Engineer' in Board Circular No.4/1999, which reads as follows "Notification No. 4/99-Service Tax, dated 28-2-1999 Service Tax -- Exemption to services provided by a consulting engineer in relation to computer software In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to any person by a consulting engineer in relation to computer software, from the whole of the service tax leviable thereon under section 66 of the said Act."
And the changed definition of 'Consulting Engineer' in the Finance Act, 2004 which reads as:
"(31) "Consulting engineer" means any professionally qualified engineer or [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;Page 7 of 9
ST/72/2010
(g) to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering [but not in the discipline of computer hardware engineering or computer software engineering;]"
And further amendment in Finance Act, 2007 with effect from 16.05.2008, 'Consulting Engineer' is defined as:
"(g) to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering [including the discipline of computer hardware engineering but excluding the discipline of computer software engineering;]"
The learned counsel submits that in view of these definitions, they were under bona fide belief that as 'Consulting Engineer' they were not liable to pay service tax for the services rendered by them. Moreover, there was no suppression as such in their declarations since they had categorically mentioned that under Section 65(105) 'Computer Software Services' were exempted. The Commissioner in the impugned order takes note of the fact that these declarations were found to be there in ST-3 returns, however, maintains that though they were aware of the fact that theirs's was manpower supply service, they continued to mis-declare as 'Consulting Engineer Service'. The Supreme Court in the case of Densons Pultretaknik (supra), their Lordships have held that:
"7. Next question is - whether the Tribunal was justified in invoking first proviso to sub-section (1) of Section 11A. Prima facie, it is apparent that there was no justifiable reason for invoking larger period of limitation. There is no suppression on the part of the appellant-firm in mentioning the goods manufactured by it. The appellant claimed it on the ground that the goods manufactured by it were other articles of plastic. For the insulating fittings manufactured by it, the tariff entry was correctly stated. The concerned officers of the Department, as noted above, after verification approved the said classification list. This Court has repeatedly held that for invoking extended period of limitation under the said provision duty should not have been paid, short-
Page 8 of 9ST/72/2010 levied or short-paid by suppression of fact or in contravention of any provision or rules but there should be wilful suppression. [Re :
M/s. Easland Combines, Coimbatore v. The Collector of Central Excise, Coimbatore, C.A. No. 2693 of 2000 etc. decided on 13-1- 2003]. By merely claiming it under heading 3926.90 it cannot be said that there was any wilful misstatement or suppression of fact. Hence, there was no justifiable ground for the Tribunal for invoking the first proviso to sub-section (1) of Section 11A of the Act".
7. In view of the above, since the ST-3 returns placed on record categorically show that they had declared the services rendered by them as exempted services under 'Consulting Engineer Service' and in view of the fact that the services were exempted till 16.05.2008 under consulting Engineer Service, the same cannot be considered as mis-declaration or suppression of facts. Hence, the impugned order is modified to the extent of confirming the demand for normal period and the penalties imposed under Section 76 and 77 are upheld and penalty imposed under Section 78 is set aside.
8. Appeal is partially allowed.
(Order pronounced in Open Court on 18.02.2025.) (P. A. AUGUSTIAN) MEMBER (JUDICIAL) (R BHAGYA DEVI) MEMBER (TECHNICAL) RV Page 9 of 9