Custom, Excise & Service Tax Tribunal
M/S Oracle Financial Services Software ... vs Commissioner Of Service Tax, Mumbai on 31 December, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/206/08 (Arising out of Order-in-Original No. 05/STC/SJS/08-09 dated 19.6.2008 passed by the Commissioner of Service Tax, Mumbai). For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) Honble Shri P.S. Pruthi, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No 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 : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Oracle Financial Services Software Ltd. Appellant Vs. Commissioner of Service Tax, Mumbai Respondent Appearance: Shri Vinay Jain, C.A. for Appellant Dr. B.S. Meena, Addl. Commissioner (AR) for Respondent CORAM: SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) SHRI P.S. PRUTHI, MEMBER (TECHNICAL) Date of Hearing: 31.12.2014 Date of Decision: 31.12.2014 ORDER NO. Per: P.S. Pruthi
The appellant is in appeal against the impugned order passed by the Commissioner of Service Tax, Mumbai confirming demand of Rs.1,08,89,976/- for the period 9.7.2004 to 6.10.2005 on the maintenance or repair of computer software service. The Commissioner did not impose any penalty under Section 76, 77 and 78 of the Finance Act, 1994.
2. The facts are that the appellant are engaged in providing service relating to maintenance or repair service of computer software. A show-cause notice was issued on 2.1.2007 demanding Service Tax for the above mentioned period. The demand was confirmed, however, the penalties were not imposed.
3. Heard both sides.
4. The learned Counsel for the appellant states that in 2003, the Business Auxiliary Services definition specifically excluded maintenance of software in the explanation to the definition. CBE&C issued a Circular on 17.12.2003 clarifying that tax on maintenance or repair of software is not leviable because it neither falls under the definition of goods nor under the definition of Business Auxiliary Service. However, pursuant to the Hon'ble Supreme Court judgment in November, 2004 in case of M/s Tata Consultancy Services, another Circular was issued by the Board on 17.10.2005, this time clarifying that since software is goods, therefore, Service Tax is payable on the maintenance of software under the service categorized as Maintenance or Repair Service. Further in 2006, the Business Auxiliary Service definition was amended to the effect that maintenance of software shall got covered under this service. The other development which took place was the amendment to the Maintenance or Repair service on 1.6.2007 by insertion of an explanation clarifying that the maintenance of goods would also include the maintenance of computer software. The learned C.A. relies on the judgment of the Hon'ble Madras High Court in the case of Kasturi & Sons Ltd. Vs. UOI 2011 (22) STR 129 (Mad) on the issue in which the Hon'ble High Court held that Service Tax will be leviable on maintenance and repair of computer software only from 1.6.2007 when the Explanation was added to the definition of Management Maintenance and Repair service.
4.1 On the issue of limitation, the learned C.A. contends that the Commissioner (Appeals) himself while passing the order, waived the penalties under Sections 76, 77 and 78 in terms of the provisions of Section 80 of the Finance Act, 1994 as there was reasonable cause for non-payment of tax.
5. The learned A.R. reiterates the findings of the Commissioner. He drew our attention to the Notification No. 20/03 dated 21.8.2003 which exempted the taxable service provided in relation to maintenance or repair of computer software, computer peripherals. This notification was rescinded on 9.7.2004 and therefore, Service Tax became payable w.e.f. 9.7.2004. According to him since the TCS judgment held that the term goods includes software, therefore, Service Tax is payable under the un-amended definition of maintenance or repair service.
6. We have considered the rival contentions. We have seen the judgment (supra) of Hon'ble Madras High Court in this case. As per this judgment, the Hon'ble Apex Court in the case of M/s TCS did not express any opinion on the issue whether unbranded and customized software would also be covered under the definition of goods. In any case, the Hon'ble High Court has considered the definition of Business Auxiliary Services and maintenance or repair service both before their amendment and after the amendment. The Hon'ble High Court observed as under: -
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; or
(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, 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 computerised 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 supercession of the statutory provisions of the Finance Acts 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 that case decided about the term, goods in the light of Andhra Pradesh General Sales Tax Act and framed the question as follows :
The appellants provided consultancy services including computer consultancy services. As part of their business they prepared and loaded 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, 1957. 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 a service contract may arise.
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. 6.1 As observed from the extract of the judgment above, the Hon'ble High Court observed that the apex Court had no occasion to consider the implication of the Finance Act, 1994 in respect of the terms Information Technology and Maintenance of Software and the decision rendered in TCS case cannot be cited for a clarification in respect of the Finance Act, which is a parliamentary enactment. Therefore, as a matter of judicial decorum, we are bound by the judgment of Hon'ble High Court and we hold that the Service Tax is not payable by the appellant for the period 9.7.2004 to 6.11.2005 under the category of Maintenance or Repair service.
6.2 Although we have given our decision on merits, we would like to observe that, whereas the Board clarified vide its Circular on 17.10.2005 that software is goods, the show-cause notice in the present case was issued only on 2.1.2007 i.e. beyond the normal period of one year. In view of frequent changes in Circulars and legal provisions, appellant cannot be faulted for not paying Service Tax. The Commissioner also, in his order, did not impose the mandatory penalty under Section 78 which involves invocation of the extended period. Therefore, we find that the demand is also hit by limitation.
7. Accordingly, the appeal is accepted and the impugned order is set aside. Consequential relief, if any, under the law is allowed to the appellant.
(Dictated and pronounced in Court)
(Anil Choudhary) (P.S. Pruthi)
Member (Judicial) Member (Technical)
Sinha
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