Custom, Excise & Service Tax Tribunal
Ms Computer Sciences Corporation India ... vs Ce & Cgst Noida on 30 October, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.55382 of 2013
(Arising out of Order-in-Original No.33/Commissioner/Noida/2012-13 dated
18/10/2012 passed by Commissioner of Customs, Central Excise & Service
Tax, Noida)
M/s Computer Science Corporation India Pvt. Ltd.,
.....Appellant
(DLF IT Park, Plot No.A-44/45, Sector-62, Noida-201301)
VERSUS
Commissioner of Customs, Central Excise &
Service Tax, Noida ....Respondent
(C-56, Sector-62, Noida) WITH Service Tax Appeal No.56090 of 2013 (Arising out of Order-in-Original No.33/Commissioner/Noida/2012-13 dated 18/10/2012 passed by Commissioner of Customs, Central Excise & Service Tax, Noida) Commissioner of Customs, Central Excise & Service Tax, Noida .....Appellant (C-56, Sector-62, Noida) VERSUS M/s Computer Science Corporation India Pvt. Ltd., ....Respondent (DLF IT Park, Plot No.A-44/45, Sector-62, Noida-201301) APPEARANCE:
Shri Atul Gupta, Advocate & Shri Prakhar Shukla, Advocate for the Assessee Shri Sarweshwar T. Khairnar, Authorised Representative for the Revenue CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NOs.70161-70162/2023 DATE OF HEARING : 11 October, 2023 DATE OF PRONOUNCEMENT : 30 October, 2023 Service Tax Appeal No.55382 & 56090 of 2013 2 SANJIV SRIVASTAVA:
This appeal is directed against order in original No 33/ आयुक्त/ नोयडा /2012-13 दिनााँ क 18.10.2012 of the Commissioner Central Excise, Customs and Service Tax Noida. By the impugned order following has been held:
"ORDER
1. I hereby confirm the demand of service tax amounting to Rs 2,33,54,306/- (Rupees two crore thirty three lacs fifty four thousand three hundred and six only) against M/s Computer Science Corporation India Pvt. Ltd C-29 Sector 55, Noida under Section 73 (1) of Finance Act, 1994.
2. I order to recover the above said confirmed amount along with appropriate rate of interest as provided under Section 75 of Finance Act, 1994.
3. I impose a penalty of Rs 2,33,54,306/- (Rupees two crore thirty three lacs fifty four thousand three hundred and six only) against M/s Computer Science Corporation India Pvt.
Ltd C-29 Sector 55, Noida under Section 76, 77 and 78 of Finance Act, 1994."
2.1 Appellant is engaged in providing IT support services to its clients in and outside service. The nature of services provided are:
a. Installation or implementation of customized software; b. Customization of software to be installed; c. Development of patches or intermediary software which enable the main software to run smoothly onto the operating system environment of the client; d. Up-gradation of installed software with newer versions, and e. Enhancement or modification of software by either opening or closing some of the inbuilt features or reports of the software.
2.2 During course of the scrutiny of the records of the appellant it was observed that during the year 2006-07, Service Tax Appeal No.55382 & 56090 of 2013 3 appellant had received Rs. 19,08,03,156/- from its indigenous clients namely, M/s Sahara Life Insurance Corporation Lucknow, ICICI Prudential LIC Mumbai. They did not paid any service tax on these services provided by them under the category of Management, Maintenance and Repair Services as defined by Section 65 (105) (zzg) of the Finance Act, 1994.
2.3 A show cause notice dated was issued to appellant asking tehm to show cause as to why:
(i) Service tax amounting to Rs 2,33,54,306/- (Rupees two crore thirty three lacs fifty four thousand three hundred and six only) should not be demanded and recovered from them under the proviso to Section 73 (1) of Finance Act, 1994 as amended.
(ii) Interest as leviable on the above amount should not be recovered from them under Section 75 of Finance Act, 1994 as amended.
(iii) Penalty should not be imposed on them under Section 76, 77 and 78 of Finance Act, 1994 for contravention of the provisions of Rule 4, 5. 6. And 7 of the Service Tax Rules, 1994 as amended.
2.4 The show cause notice has been adjudicated as per the impugned order referred in para 1 above. Aggrieved appellants have filed this appeal.
3.1 We have heard Shri Atul Gupta and Shri Prakhar Shukla, Advocates for the appellant and Shri Sarweshwar T Khairnar Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits:
Issue is no longer res-integra and has been decided in the favour of the appellant by the following decisions:
o IBM India Pvt Ltd. [2021 (47) GSTL 7 (Kar)]; o Kasturi & Sons Ltd. [2011 (22) STR 129 (Mad)]; o SAP India Pvt Ltd [2016 (42) STR 890 (T-Mum)] o Persistent System Ltd [2016 (42) STR 890 (T- Mum)] Service Tax Appeal No.55382 & 56090 of 2013 4 o Phoenix IT Solutions Ltd [2011 (22) STR 400 (T- Bang)] o Phoenix IT Solutions Ltd [2017 (52) STR 182 (T- Hyd)] o Starship Technologies Ltd. [2018 (8) GSTL 446 (T- Mum)] OIO is bad in law as it is contrary to various decisions of the Hon'ble High Court on the issue.
The OIO is illegal and without jurisdiction as it is based on time barred SCN. The show cause notice has been issued on 24.10.2011 invoking extended period as per proviso to Section 73(1) to make this demand. All the facts came in the knowledge of the revenue in September 2008 [Notice C No 1/(1) Audit AG-XII/ Noida/2008-09 dated 02.09.2008]. Therefore extended period could not have been invoked.
3.2 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments.
4.2 For holding against the appellants, impugned order records following findings:
"I find that there is different perception between department and party relating to classification of the service provided by the party during the year 2006-07. The party's submission is that their service falls under "Information Technology Software Service" and therefore they were not liable to p-ay service tax prior to the period 2008. Since the demand pertains to 2006-07 and at that time repair & maintenance service was chargeable to tax under service tax regulations therefore I would like to examine the definition for its applicablityin this case during the relevant period. Repair and maintenance services at Service Tax Appeal No.55382 & 56090 of 2013 5 the relevant time classifiable under Section 65 (105) (zzg) of the Finance Act,1 994 was defined as under:
"Taxable service under management, maintenance or repair means any service provided or to be provided to any person in relation in relation to management, maintenance or repair by"
(i) Any person under a contract or an agreement;
or
(ii) A manufacturer or any person authorized by him, in relation to,-
a. Management of properties, whether immovable or not; or b. Maintenance of 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 removal of doubts, it is hereby declared that for the purpose of this clause,-
(a) "good" includes computer software;
(b) "properties" includes Information technology
software.
Thus it is seen from the definition that "maintenance and repair service" includes reconditioning or restoration, or servicing of any goods or equipments. In the case of "Software maintenances" actually the services offered in most of the cases is "software up-gradation and its smooth functioning. The party in their defence reply dated 15.09.2008 have themselves admitted that they provide services for (1) Installation or implementation of customized software; (2) Customization of software to be installed; (3) Development of patches or intermediary software which enable the main software to run smoothly onto the operating system environment of the client; (4) Up-gradation of installed software with newer versions, Service Tax Appeal No.55382 & 56090 of 2013 6 and (5) Enhancement or modification of software by either opening or closing some of the inbuilt features or reports of the software. Therefore I find that by their own admission the services being provided by them are classifiable under "repair and maintenance services" and not "information technology services". The party in their defence has submitted that software maintenance is not covered under maintenance of goods, however I find that definition of the goods has been expanded to include computer software as well. Consequently maintenance and repair of computer software would be leviable to service tax under this category.
Furthermore, party in their defence have argued that circular No 70/19/2003 ST dated 17.12.2003 categorically exempted the service tax on software maintenance and the said circular was rescinded by circular no 93/04/2007 dated 10.07.2007.
They have further submitted that as soon as the circular dt 17.12.2003 was rescinded vide circular dt. 10.07.2007 they started paying service tax and thus service tax for the period 2006-07 is not payable by them. However, I donot find any force in party's submission in view of the decision of Hon'ble Supreme Court in case of M/s Tata Consultancy Services Vs State of Andhra Pradesh [2004 and VCBEC Circular No 81/2/2005-ST dated 07.10.2005, which was issued in supersession of all the previous circulars.
The said Circular provides that "2. Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh (Civil Appeal no 2582 0f 1998) has observed that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore, sale Service Tax Appeal No.55382 & 56090 of 2013 7 of computer software falls within the scope of sale of goods. Supreme Court has also observed that they are in agreement with the view that there is no distinction between branded and unbranded software.
3. Branded software, also known as canned software, sold off the shelf, is transferred in a media and is sold as such and the Supreme Court has decided that such branded software falls within the definition of goods. In the case of unbranded /customized software, the supplier develops the software and thereafter transfers the software so developed in a media and it is taken to the customer's premises for loading in their system. Thus, in the case of unbranded / customized software also, the intellectual property namely software is incorporated in a media for use. Supreme Court has held that software in a media is goods.
4. Any service provided to a customer by any person in relation to maintenance or repair is leviable to service tax under section 65(105) (zzg) of the Finance act , 1994. "Maintenance or repair" is defined under section 65(64) of the said Act. Accordingly, "maintenance or repair" means any service provided in relation to maintenance or repair or servicing of any goods or equipment.
5 Software, being goods, any service in relation to maintenance or repair or servicing of software is leviable to service tax under section 65(105)(zzg) read with section 65 (64) of the Finance Act, 1994."
Actually vide Finance Act, 2007, the government inserted an explanation in the definition of maintenance and repair service stating that "for removal of doubts it has been clarified that for the purpose of this clause goods includes software also. In fact circular No 81/2/2005-ST dated 07.10.2005 was issued in supersession of all earlier Service Tax Appeal No.55382 & 56090 of 2013 8 circulars therefore party's reliance on circular No 70/19/2003-ST dated 17.12.2003 is not based on legal footings.
In view of above, I am of the view that maintenance a& repair services provided by the party with regard to software to their clients are taxable under the head of "Management, Maintenance & Repair Service" and thus are chargeable to service tax under section 66 of the Finance Act, 1994. Since the party has not paid service tax amounting to Rs 2,33,54,306/- (inclusive of Education Cess) involved on services namely Management, Maintenance & Repair Services provided by them to their client in relation to software during the year 2006-07 therefore the same is liable to be recovered from them under Section 73 (1) of the Finance Act, 1994 along with interest under Section 75 of the said Act.
From the facts of the case and other records I find that the aprty never informed the department about maintenance and repair services being provided by them to their clients in relation to software during the year 2006-07, hence suppressed this vital fact from the department with intent to evade payment of service tax. From the facts of the case and the bills issued by the aprty I find that even when they started paying service tax in 2007, they issued the bills under the category "T & M billing" wherein the bill was raised on the vbasis of pre-agreed per hour rates which shows that they were still hiding the true nature of services being provided by them. Therefore I am of the view that the extended provisions of proviso to Section 73 (1) of the Finance Act, 1994 has rightly been invoked for recovery of the service tax not paid by the party."
4.3 Appellant have relied upon series of decisions to argue that the services provided by them are not taxable under the taxable category of "Management, Maintenance and Repair Services" as Service Tax Appeal No.55382 & 56090 of 2013 9 defined under Section 65 (105) (zzg) of the Finance Act, 1994. We take up these decisions for consideration first.
A. IBM India Pvt Ltd [2007 (47) GST 7 (Kar)] B Kasturi & Sons Ltd [2011 (22) STR 129 (Mad)] "2.Facts leading to filing of this appeal briefly stated are that the respondent is engaged in providing services with regard to maintenance and repair of computer software. Vide Notification dated 21-8-2003, the maintenance services related to computers, computer systems or computer peripherals were exempt from payment of service tax. The Central Board of Direct Taxes (CBDT) issued a circular dated 17-12-2003 by which it was clarified that the maintenance of repair of computer software would not be liable to service tax inasmuch as the same does not amount to maintenance or repair of tangible goods. The Notification dated 21-8-2003 was withdrawn by a Notification dated 9-7-2004 and thereafter, the liability to pay service tax to services relatable to maintenance and repair of computer software were made effective from 1-6-2007. Thereafter, a show cause notice dated 22-9-2009 was issued to the respondent by which service tax to the tune of Rs. 3,41,63,132/- for a period from 9-7-2004 to 6-10-2005 was demanded. The respondent submitted a reply to the aforesaid notice. However, vide order dated 25-8-2009, the adjudicating authority held the respondent liable payment of service tax to the tune of Rs. 3,41,63,132/- for a period from 9-7-2004 to 6-10-2005 along with interest and penalty to the extent of 100% in terms of Section 78 of the Finance Act. The respondent challenged the validity of the aforesaid order in an appeal before the Tribunal. The Tribunal vide order dated 23-7-2015 by placing reliance on decision of the Madras High Court held that software maintenance is exigible for levy of service tax only with effect from 1-6-2007 whereas, the period in question is from 9-7-2004 to 6-10-2005. It was further held that the demand is barred by limitation as it has been raised beyond Service Tax Appeal No.55382 & 56090 of 2013 10 the period of limitation and it was also held that no allegation of any suppression or misstatement can be cast upon the respondent as there was a doubt with regard to levy of the tax in question. In the result, the appeal preferred by the respondent was allowed. In the aforesaid factual background, this appeal has been filed.
5. We have considered the submissions made by Learned Counsel for the parties and have perused the record. For the facility of reference, paragraphs 6, 7 and 8 of the decision rendered by High Court of Madras in Kasturi and Sons is reproduced for the facility of reference :
6. Admittedly, it is under the Finance Act, 2007, with effect from 1-6-2007, the term 'goods' has been expressly made to include computer software. But earlier in the Finance Act, 2003 in which the terms, 'business auxiliary service' and 'maintenance or service' were introduced for the first time. There was specific exclusion of information technology service including maintenance of computer software from the purview of business auxiliary service. The term 'business auxiliary service' as introduced in the Finance Act, 2003 with explanation contained therein is as follows :
65(19) "business auxiliary service" means any service in relation to -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client;
(iii) any customer care service provided on behalf of the client; or
(iv) any incidental or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services.
Service Tax Appeal No.55382 & 56090 of 2013 11 And includes services as a commission agent, but does not include any information technology service.
Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause "information technology service", means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer systems.
7. That was also followed in the Finance Act, 2004 with effect from 10-9-2004 and that status has been followed till the Finance Act, 2007, as stated above. Therefore, the liability for payment of service charge from 2007 which has been imposed by way of statutory incorporation is not in dispute. But the question for consideration is, till passing of the Finance Act, 2007 in the light of specific exemption of information technology from the purview of "business auxiliary service" under the respective Finance Acts. Whether the impugned circular issued by the second respondent can have the effect of imposing the liability of service tax or otherwise and whether the circular issued by the second respondent can be read in super cession of the statutory provisions of the Finance Act in the respective financial years.
8. Therefore, on fact, it is clear that till the advent of the Finance Act, 2007, the information technology which included maintenance of computer software, had been outside the purview of 'business auxiliary service', especially under Section 65 and the term, 'goods' in the Finance Act, 2007 has included 'computer software' under Section 65(105)(zzg). However, under the impugned circular the second respondent placed reliance on the judgment of the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [2005) 1 SCC 308] to conclude that software being goods, any service relating to maintenance, repairing and servicing of the same is also liable for service tax. The Supreme Court in Service Tax Appeal No.55382 & 56090 of 2013 12 that case decided about the term 'goods' in the light of Andhra Pradesh General Sales Tax Act and farmed the question as follows :
The appellants provided consultancy services including computer consultancy services. As part of their business they prepared and laded on customers' computers custom-made software ("uncanned software") and also sold computer software packages off the shelf ("canned software"). The canned software packages were of the ownership of companies/persons who had developed those software. The appellants were licensees with permission to sub-license those packages to others. The canned software programs were programs like Oracle, Lotus, Master Key, N-Export, Unigraphics, etc. The question raised in this appeal was whether the canned software sold by the appellants could be termed as "goods" and as such was assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1947.
And ultimately answered as follows :
"There is no error in the High Court holding that branded software is goods. In cases of both branded and unbranded software the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed etc. Thus even unbranded software, when it is marketed/ sold, may be goods. However, this aspect is not being dealt with here and no opinion is expressed thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is service contract may arise."
6. Learned Counsel for the appellant was unable to point out that the aforesaid decision was challenged before the Supreme Court by the appellant. It is also pertinent to mention here that in para 17 of the aforesaid judgment, the Service Tax Appeal No.55382 & 56090 of 2013 13 stand of the appellant has been recorded, which reads as under :
17. While it is admitted by the respondents in the counter affidavit that there has been exemption in respect of maintenance of computer software prior to 2006, it is not even their case that in 2007, when the amendment was brought in the Finance Act, it was given retrospective effect and even the altered definition of the term 'goods' in the amendment of 2007 in the Finance Act, 1994 under Section 65(105)(zzg) also was not given retrospective effect and hence, it cannot be said that the impugned circular attempts to give effect of the provisions or explains the changes proposed in the Finance Act, 2005.
7. Thus, admittedly as per the stand taken by the respondent themselves before the High Court of Madras, it is evident that activity of maintenance of computer software was exempt from the provisions of the Act prior to 2006. We are in agreement with the view taken by the High Court of Madras. It is pertinent to mention here, that in the show cause notice itself no allegations of fraud collusion, misstatement or suppression of facts have been stated against the respondent, therefore, the demand is barred by limitation under Section 73 of the Finance Act, 1994 as well. For the aforementioned reasons, the substantial questions of law are answered in against the appellant and favour of the respondent."
As the decision of the Kasturi & Sons have been reproduced in this decision we are taking for our consideration both the decisions simultaneously. The decision of the Hon'ble High Court of Karnataka is based mainly on the concession and admittance made by the revenue that the services of software maintenance were exempted prior to the period 2006. The demand in the case of IBM was for the period 2004-05 and not for the period 2006- 07, for the period which we are concerned.
Service Tax Appeal No.55382 & 56090 of 2013 14 4.4 Hon'ble Madras High Court in case of Katuri & Sons was in any case not even concerned with the taxation under the category of repair and maintenance service, the issue in case of Kasturi & Sons was in respect of taxation under the category of "Business Auxiliary Service" as has been noted in the order of Hon'ble High Court. Hon'ble High Court did not decide the issue in respect taxability under the category of Management Repair and Maintenance Services but had observed that the circular issued giving retrospective effect to the amendments made by Finance Act, 2007, cannot be upheld and the same should have no application while deciding the cases for the past period. The relevant paragraphs of this decision are reproduced below:
"9. While deciding the same, there was no occasion to consider the implications of the Finance Act 2003 to 2006 in respect of the terms 'information technology' and 'maintenance of software' and the decision rendered in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308] in the context of the said Act under Entry 54, List-II of VII Schedule to the Constitution cannot be cited for a clarification in respect of the Finance Act, 1994 which is a Parliamentary enactment.
10. The Supreme Court held in Kerala Finance Corporation v. Commissioner of Income-tax [(1994) 4 SCC 375] in the context of Section 119 of the Income-tax Act that the circulars issued cannot override the provisions of the Act and the relevant portion of the judgment is as follows :
"14. The fact that the circular to which Shri Salve has referred is one which had been issued in exercise of powers conferred by Section 119 of the Act has no significance insofar as the point under consideration, namely, whether the circular can override or detract from the provisions of the Act, is concerned, inasmuch as what Section 119 has empowered is to issue orders, instructions or directions for the "proper administration" of the Act or Service Tax Appeal No.55382 & 56090 of 2013 15 for such other purposes specified in sub-section (2) of the section. Such an order, instruction or direction cannot override the provisions of the Act; that would be destructive of all the known principles of law as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament. Such a contention cannot seriously be even raised."
15. The impugned circular has been issued by virtue of the powers conferred under Section 37B of the Central Excise Act, 1944 which is as follows :
37-B. Instructions to Central Excise Officers. - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board :
Provided that no such orders, instructions or directions shall be issued-
(a) so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or
(b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions."
16. The scope of such power came to be decided by this Court in Lakshmi Machine Work Ltd. v. Union of India [(1992) 57 E.L.T. 211 (Mad)] to the effect that the circular cannot interfere with the powers of the quasi-judicial Service Tax Appeal No.55382 & 56090 of 2013 16 authority in applying the statutory provisions. J. Kanakaraj, J. (as He then was) observed in this regard as follows :
"19. The last point which has to be decided is whether the first and third respondents have jurisdiction to issue such circulars which bind the quasi-judicial authorities without leaving any room for exercising their quasi-judicial powers. The respondents can take umbrage, only under Section 37(B) of the Act. Sri K. Parasaran argues that Section 37(B) should be to the classification of excisable goods or with reference to levy of duties of excise on such goods. In other words, it is argued that the words "all such goods"
are relatable only to the classification of excisable goods. If the argument of the revenue with regard to the scope of Section 37(B) is accepted, it will only mean that the second respondent can give any direction to any of the statutory authorities and direct them to impose duty in a particular manner. I am clearly of the opinion that could not have been the intention of the legislature. The quasi- judicial authorities are certainly supposed to apply the charging provisions to the facts of a case and find out whether the goods are assesssable and if so what would be the assessable value. Certainly Section 37(B) does not enable the second respondent to give a direction that in respect of advances/deposits, notional interest is definitely chargeable and includible in the assessable value in all cases, notwithstanding the fact whether the same had an effect on the price, directly or indirectly or did not have such an effect..................................................."
17. While it is admitted by the respondents in the counter affidavit that there has been exemption in respect of maintenance of computer software prior to 2006, it is not even their case that in 2007, when the amendment was brought in the Finance Act, it was given retrospective effect and even the altered definition of the term, 'goods' Service Tax Appeal No.55382 & 56090 of 2013 17 in the amendment of 2007 in the Finance Act, 1994 under section 65(105)(zzg) also was not given retrospective effect and hence, it cannot be said that the impugned circular attempts to give effect to the provisions or explains the changes proposed in the Finance Act, 2005.
18. The judgment in Collector of Central Excise, Vadodra v. Dhiren Chemical Industries [(2002) 2 SCC 127 = 2002 (139) E.L.T. 3 (S.C.)] on which reliance was placed by the learned counsel for the respondents, wherein it was held that the circular issued by the Central Board of Excise and Customs giving different interpretation for some of the words, would bind the revenue has no application to the facts of the present case. Here, it is not a case of different interpretation of the circular, but it is a case where the circular sought to explain the statutory provisions.
19. Again, in State of Kerala v. Kurian Abraham (P) Ltd. and another [(2008) 3 SCC 582 = 2009 (16) S.T.R. 210 (S.C.) = 2008 (224) E.L.T. 354 (S.C.), the Supreme Court, in the light of the Central Excise Act, 1944 and the Kerala General Sales Tax Act, 1963 and the Central Sales-tax Act, 1956, considered the nature of commodity taxed regarding the turnover of field latex in the hands of the asessee and the assessment was made on the ground that centrifuge latex obtained by processing field latex is a different commodity based on a circular issued by the Board in order to sustain the impugned notification and found on fact as follows :
"22. We find no merit in the above contentions. At the outset, it may be stated that in the case of field latex there is 60% water and 40% is the rubber content. On the other hand, centrifuged latex produced from field latex reverses the ratio whereby the rubber content is increased to 60% and the water content is reduced to 40%. Basically, field latex is raw rubber whereas centrifuged latex is a product.
Service Tax Appeal No.55382 & 56090 of 2013 18 This is the rationale behind giving or setting-off/deduction under Notification dated 13-11-2007."
20. Again, the judgment relied upon by the learned counsel for the respondents in Union of India v. Azadi Bachao Andolan [(2004) 10 SCC 1] was in the context of the circular issued in violation of Section 119 of the Income-tax Act relating to the residence nature of a Company which was sought to be assessed and it was held that the powers of Central Board of Direct Taxes in issuing directions in the form of circular under Section 119 of the Income-tax Act to set things on course by eliminating avoidable wastage of time, talent and energy of the assessing officers discharging the onerous public duty of collecting revenue and that is not the case on hand.
21. Further, the judgment of this Court in W.P. No. 9835 of 2010, etc. batch dated 14-9-2010 [2010 (20) S.T.R. 591 (Mad.)] on which reliance was placed by the learned counsel for the respondent's is of no help to the case of the respondents. They were all cases where individual show-cause notices and summons were issued to individual assessees based on the circular. In such circumstances, finding that individual assessees can file their objections and against the decision the appeal remedy is available, the writ petitions came to be dismissed. But, here it is a challenge to the circular which cannot be compared to the circumstances that existed in the above said batch of writ petitions.
22. In such view of the matter, the impugned circular is declared to have no application to the petitioner, as the same is opposed to the provisions of the Finance Act insofar as it relates to imposing of service tax on software relating to maintenance, repairing and servicing under the Finance Act, 1994 before the period of Finance Act, 2006. No costs. Connected miscellaneous petition is closed."
Service Tax Appeal No.55382 & 56090 of 2013 19 4.5 However we find that tribunal has dealt with the issue of taxability of this service under the category of "Management Maintenance and Repair Services" and has held as follows:
Phoenix IT Solutions Ltd. [2011 (22) S.T.R. 400 (Tri.
- Bang.)]
13. The next service under dispute is software maintenance. The learned Commissioner in impugned order has held that e-Care maintenance, website maintenance and data base maintenance are all maintenance contracts for the software used in their website etc. Software are goods and repair of the same are chargeable to Service Tax under the category of management or repair service w.e.f. 9-7-04, the date on which earlier Notification was rescinded by Notification No. 7/04-S.T., dt. 9-7-04. The learned Advocate submitted that it became taxable only w.e.f. 1-6-07 as per the amendment of Finance Act, 1994 and explained in the Circular No. 334/1/2007, dt. 28-2-07. He submitted that this has been totally ignored to demand tax. He relied upon the decision of the Apex Court in the case of Martin Lottery Agencies Ltd. as reported in 2009-TIOL-16 (SC) = 2009 (14) S.T.R. 593 (S.C.) to support the submission that even if particular amendment is made adding explanation to insert provision to remove doubt, the same cannot be retrospectively applied to demand tax. In the clarification issued by the department after Budget 2007-2008, it was stated that Section 65(64) of Finance Act, 1994 has been amended to clarify that "goods" for the purpose of this service (Management, Maintenance or repair service) includes computer software. It was also clarified that development of computer software would be liable to tax under Information and Technology service whereas maintenance and repair of computer software would be coming under management, maintenance or repair service.
Service Tax Appeal No.55382 & 56090 of 2013 20
14. It is the submission of the appellant that maintenance and repair includes development of software and in fact development of software is outside the preview of service tax since the Information Technology service became liable to Service Tax on the development of software only w.e.f 16-5-08. However, there is no bifurcation of the cost of development and the cost of maintenance. Further, the contract also speaks of BMS software maintenance, e-care maintenance, maintenance of software and website maintenance. In every case, word 'maintenance' has been used. In the absence of the word 'development' and presence of word 'maintenance' in the agreement, 'and also in view of the failure of the appellant to submit bifurcation, we have to take a view that the agreement covers maintenance only.
15. The next question is whether the Service Tax can be levied w.e.f. 9-7-04. Hon'ble Supreme Court in the case of Martin Lottery Agencies Ltd. observed "while discussing the amendment introduced w.e.f. 16-5-08, by way of explanation in sub-clause (ii) of Section 65(19), explanation cannot be considered to have been clarificatory or declaratory so as to have retrospective effect. The Apex Court observed "there is no other option to hold that by inserting the explanation appended clause 19 of Section 65 of the Act, new concept of imposition of tax has been brought in. The Parliament may be entitled to do so. It would be entitled to raise a legal fiction, but when a new type of tax is introduced or a new concept of tax is introduced so as to widen the net, it, in our opinion, should not be construed to have a retrospective operation on the premise that it is clarificatory or declaratory in nature. There is no doubt this clarification widen the scope of taxation of service." In any case, the appellants themselves have submitted that the liability can arise after 1-6-07. Therefore, in view of the ratio of the decision in the case of Martin Lottery Agencies Ltd., we consider that Service Tax Appeal No.55382 & 56090 of 2013 21 it would not be appropriate to apply the explanation retrospectively and levy Service Tax w.e.f. 9-7-04. In any case, the very fact that explanation has been added to clarify doubts, would show that suppression of facts.
SAP India Pvt. Ltd. [2011 (21) S.T.R. 303 (Tri. - Bang.)] 5.1 The question now arises as to whether maintenance or repair service as it was introduced on 1-7-2003 as a taxable service under Section 65(64) read with Section 65 (105) (zzg) can be held to have covered maintenance or repair of software. In the case of Tata Consultancy Services (supra), BSNL (supra) and Infosys Technologies (supra), the view taken was that software in any media would also be "goods". The question whether maintenance or repair of software was a taxable service within the ambit of Section 65(64) of the Finance Act, 1994 was not apparently considered in any of those cases. That software (branded or customised) has the attributes of "goods" is just a postulate for us and we shall proceed accordingly. Maintenance or repairs of goods will not normally result in upgradation of its value or functional capacity or efficacy to higher levels than what originally existed. But maintenance of software, as per technical literature, can improve its applicability to new functional areas to benefit the customer thereby enhancing its functional capacity/efficacy and value. Perhaps, the only category of maintenance referred to by the learned Special Consultant, which may compare with maintenance of tangible goods, is corrective maintenance. Other categories like adaptive maintenance and perfective maintenance (enhancement) cannot be limited to the scope of maintenance of goods, Therefore, in our considered view, the expression "maintenance or repair", when used in connection with computer software, has a wider import than when used in connection with Service Tax Appeal No.55382 & 56090 of 2013 22 tangible goods. In this view of the matter, we would now have a look at the new levy introduced on 16-5-2008.
5.2 "Information technology software" is seen defined under Section 65(53a) of the Finance Act, 1994 as follows :-
65(53a) "information technology software" means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment;
5.3 As per Section 65(105)(zzzze) "taxable service"
means any service provided or to be provided to any person, by any other person in relation to information technology software for use in the course, or furtherance, of business or commerce, including -
(i)........................
(ii)........................
(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software;
(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a data base, advice on proprietary information technology software;
(v).....................
(vi)......................
(underlinings added).
5.4 The above new taxable service pertains to information technology software. The debate before us Service Tax Appeal No.55382 & 56090 of 2013 23 was, by and large, in relation to computer software. The Circulars and case-law cited before us were also in the context of discussion on computer software. The new levy w.e.f. 16-5-2008 is in relation to information technology software. The question is whether the computer software and information technology software were treated differently or as same by the legislature. At this juncture, our mind travels to an explanation added to Section 65(64) of the Finance Act, 1994. This explanation which was added w.e.f. 1-6-2007 reads as follows :-
"For the removal of doubts, it is hereby declared that, for the purposes of this clause, "goods" includes "computer software".
This explanation was amended w.e.f. 16-5-2008 as follows :-
"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", (underlining added) In this context, we think, we must also reproduce the full text of Section 65(64) as it stands post-16-5-2008.
"Section 65(64) "maintenance or repair" means any service provided by -
(i) any person under a maintenance contract or agreement; or
(ii) a manufacturer or any person authorized by him, in relation to, -
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or Service Tax Appeal No.55382 & 56090 of 2013 24
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle." (underlining added) 5.5 Going by the explanation (supra), we find from the above text of Section 65(64) that maintenance or repair of information technology software is specifically covered under sub-clause (b) whereas maintenance or repair of computer software is specifically covered under sub-clause
(c). It is obvious that the legislature has understood information technology software to be distinct and different from computer software. The Circulars and decisions cited before us, all, discuss computer software. No material has been placed before us, other than the literature supplied by the learned Special Consultant for the Revenue, to show that activities of the kind undertaken by the appellant during the material period would be encompassed in the ERP regime. To our mind, these are activities very much within the coverage of sub-clause (zzzze)(iii) of Clause 105 of Section 65 of the Finance Act, 1994. Any incidental advice, consultancy or assistance given by the service provider will be squarely covered by sub-clause (zzzze)(iv). It is pertinent to note that adaptation, upgradation, enhancement, implementation, etc. of information technology software are expressly covered by the definition of 'information technology software' service and that these very operations have also been specified as different categories on software maintenance in the literature supplied to us. Thus there is almost total convergence between the technical literature on software and the definition of information technology software service given under Section 65(105)(zzzze) of the Finance Act, 1994.
Persistent System Ltd. [2016 (42) S.T.R. 890 (Tri. - Mumbai)] Service Tax Appeal No.55382 & 56090 of 2013 25
9. The widening of the tax net by increasing the services that were liable to tax since its inception in 1994 demonstrates clear legislative intent in not taxing services unless and until their incorporation in Section 65(105) of Finance Act, 1994. From the incorporation of Section 65(105)(zzzze) effective from 16th May, 2008, it is clear that 'information technology software' or anything related to it was not intended to be taxed prior to that date. That all activities related to that were also not taxable from an earlier date under any other entry is also clear from the amendment to the Explanation in Section 65(64) noted supra from that very date. That the amended Explanation equated 'computer software' with 'goods', the maintenance or repair of which was taxable from an earlier date and equated 'information technology software' with 'property' only when 'information technology software' was made taxable prompted this Tribunal to draw a distinction between the two and hold that the activities of M/s. SAP India Pvt. Ltd., which is distinguishable from the activities of the appellant before us only by the clients being overseas, was liable to tax from 16th May, 2008.
10. We are, therefore, required to arbitrate on the rival contentions that the appellant maintains 'information technology software' or that the appellant maintains 'computer software'. As 'maintenance of goods', which, as per Explanation extracted supra, includes 'computer software', existed from an earlier date, contention of Revenue would render the appellant taxable for the period in dispute. Revenue relies upon the superseding Circular No. 81/2/2005-S.T., dated 7th October, 2005 of Central Board of Excise & Customs which was issued consequent to the decision of the Hon'ble Supreme Court In Re : Tata Consultancy cited supra.
11. The finely tuned calibration that is demonstrated by the Supreme Legislature in the taxing of various services Service Tax Appeal No.55382 & 56090 of 2013 26 since 1994 is patently not reflected in the manner in which tax collection is sought to be enhanced by the Central Board of Excise & Customs (or, more probably, by overreach on the part of field offices by confusing the two categories of software). Undoubtedly, computer software of a type was held to be goods by the Hon'ble Supreme Court. That was in the context of the definition of 'goods' in the Andhra Pradesh General Sales Tax Act, 1957. Even if the definition therein was almost identically worded as the definition in Section 2(7) of Sale of Goods Act, 1930 to which 'goods' in Finance Act, 1994 is linked and it is that definition which was interpreted by the Hon'ble Supreme Court, the absence of intent to tax all software was apparent in the later inclusion of 'information technology software' in Section 65(105) of Finance Act, 1994. The circular relied upon by the learned authorized representative appears to be more of an opportunistic attempt to increase revenue rather than a deliberated interpretation of legislative intent. Certainly, in the light of subsequent distinguishing between the two categories of software for taxation, this would appear to be so. Pellucid articulation of interpretation in circulars is desirable to prevent conflict with legislative intent and to avoid the potential for overreach by an over enthusiastic tax collector.
14. 'Goods' are, therefore, and more particularly in the context of the new taxable entry of 2008, restricted to computer software, which appears to be interchangeable with proprietory software, whose maintenance alone is liable to be taxed prior to 16th May, 2008 under Section 65(105)(zzg).
17. The demand under 'maintenance or repair services' in the impugned order does not survive. ....
Staarship Technologies Ltd.[2018 (8) G.S.T.L. 446 (Tri. - Mumbai)] Service Tax Appeal No.55382 & 56090 of 2013 27
4. We have carefully considered the submissions made by the learned AR and perused the records. We find that the period involved in this case is 9-7-2004 to 31-3-2006. During the said period as per the definition of maintenance and repair service, those services which were related to management of properties, maintenance and repair of properties and maintenance and repairs of any goods were covered. In the said definition an explanation was added with effect from 1-6-2007 which reads as follows :
"For the removal of doubts, it is hereby declared that for the purposes of this clause, "goods" includes "computer software"."
Accordingly, before 1-6-2007, in the definition of maintenance and repairs, the goods did not include the software. Accordingly, the maintenance and repair of software was not considered as taxable before 1-6-2007. The Commissioner (Appeals) placed reliance on the CESTAT decision in the case of SAP India Pvt. Ltd. (supra), wherein the Tribunal has taken the same view and find that maintenance and repair services of the software is not taxable before 1-6-2007.
4.6 Thus we observe that on the issue of the taxation under category of "Management Maintenance and Repair Services"
various benches of tribunal has consistently taken the view that the software maintenance services which are akin to the services provided by the appellant in present case are only taxable from 01.06.2007. Nothing contrary is available on records. Appellant has been paying service tax in respect of these services as submitted by the counsel for appellant with effect from 01.06.2007.
4.7 In view of the above decisions of the tribunal which are squarely on the issue before us we do not find any merits in the impugned order.
Service Tax Appeal No.55382 & 56090 of 2013 28 Service Tax Appeal No.56090 of 2013 Revenue have also filed appeal against the impugned order referred in para-1 above, for the reason that combined penalties have been imposed by the Adjudicating Authority under Section 76, 77 and 78 of the Finance Act, 1994. It is contended in the appeal that separate penalties should have been imposed under each section.
As we have held that the demand is not maintainable in the present case, the issue of imposition of any penalty on the appellant cannot survive. Accordingly, this appeal filed by the revenue asking for imposition of penalties under Section 76, 77 & 78 is without any merit.
5.1 Appeal No.55382 of 2013 filed by the Appellant is allowed & Appeal No.56090 of 2013 filed by the Revenue is dismissed.
(Pronounced in open court on-30/11/2023) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp