Custom, Excise & Service Tax Tribunal
Polaris Software Lab Ltd vs Commissioner Of Central Excise on 29 September, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
CHENNAI
Appeal No. ST/370/2009
[Arising out of Order-in-Original No.6/2009 dt. 30.3.2009 passed by the Commissioner of Central Excise, Chennai-III]
Polaris Software Lab Ltd. Appellant
Versus
Commissioner of Central Excise,
Chennai-III Respondent
Appearance:
Shri P. Ravindran, Advocate For the Appellant Shri L. Paneer Selvam, AC (AR) For the Respondent CORAM : Honble Shri R. Periasami, Technical Member Honble Shri P.K. Choudhary, Judicial Member Date of Hearing/Decision : 29.9.2015 FINAL ORDER No.41418/2015 Per R. Periasami
The present appeal is filed against the order passed by Commissioner of Central Excise, Chennai-III.
2. The brief facts of the case is that appellant is a software firm carrying out various activities of maintenance and repair, man power supply etc. through their Business Solution Centres located at Chennai, Hyderabad, Gurgaon for which they have obtained centralised service tax registration from Chennai-III Central Excise Commissionerate. Based on the intelligence that appellants were rendering various maintenance of software services to various banks and also providing persons, a SCN dt. 18.10.2007 was issued to the appellant demanding service tax of Rs.83,93,309/- on maintenance of computer software service and service tax of Rs.16,68,679/- under man power recruitment agency service along with interest and also proposed for penalty. The adjudicating authority in the impugned order confirmed the demand of service tax of Rs.83,93,309/- and Rs.16,61,679/- as service tax under respective services and also appropriated an amount of Rs.55,15,784/- towards maintenance and repair service and Rs.11,78,505/-towards man power recruitment or supply agency service and also appropriated interest paid by them of Rs.1,96,861/- and also appropriated Rs.1,33,886/- towards Educational Cess and also imposed penalty of Rs.1,00,54,988/- and also imposed penalty of Rs.1000/ under section 77. Hence the present appeal.
3. Heard both sides. Ld. Advocate appearing for the appellant submits that the period involved in the impugned order relates to July 2004 to March 2006 in respect of software maintenance service and June 2005 to March 2006 in respect of man power recruitment or supply agency service. He submits that part of the amount paid by them was already appropriated in respect of both the services. He submits that the amount was paid under protest.
3.1 On the software maintenance service, he submits that the issue is no longer res integra as the government brought specific amendment under section 65 of Finance Act under the category of maintenance and repair service w.e.f. 1.6.2007 where maintenance of software specifically includes computers. He relied Hon'ble Madras High Court's decision in Kasturi & Sons Ltd. Vs UOI - 2011 (22) STR 129 (Mad.) He submits that the Honble High Court held that amendment was bought under section 65 including computer software maintenance shall not have retrospective effect. He relied Tribunals decision of this Bench in the case of Financial Software Systems Pvt. Ltd. Vs CST Chennai - 2014 (33) STR 393 (Tri.-Chennai) where the Tribunal by relying the above Honble Madras High Court decision allowed the appeal and held that maintenance of computer software cannot be subjected to service tax under the entry of Management and Maintenance or Repair service prior to 1.6.2007. He also relied the Principal Bench decision of the Tribunal in the case of VGL Softtech Ltd. Vs CCE Jaipur - 2013 (31) STR 123 (Tri.-Del.).
3.2 On the second issue, viz. man power recruitment or supply agency service, he submits that they are not covered under the definition of man power recruitment or supply agency service and they are providing IT services which is a specialized service. They are not recruiting any person and the service became taxable only w.e.f. 16.5.2008 where the software services brought under service tax net. He further submits that if Man power recruitment service is held to be taxable, they are entitled to avail cenvat credit on various input services availed during the relevant period. He submits that during that period they were entitled to avail upto 20% of cenvat credit on the input services. He drew our attention to para-25 of OIO wherein they have submitted before the adjudicating authority for considering availment of cenvat credit he did not consider their plea on the ground that he is not the proper authority.
4. On the other hand, Ld. A.R appearing on behalf of Revenue reiterates the findings of OIO. He drew our attention to para-22 of OIO and submits that Notification No.20/2003-ST dt. 21.8.2003 which granted exemption of service tax on maintenance or repair service was withdrawn vide Notfn No.7/2004-ST dt. 9.7.2004. Therefore, the adjudicating authority rightly confirmed the demand of service tax on the maintenance of software service after the rescinding of the above notification. He relied the statement of Mr. Gopinath, Manager (Finance) (page 103 of PB) where he clearly admitted the tax liability and voluntarily paid service tax. He relied the service agreement entered between the appellant and ICICI bank at page 120 of the paper book. He drew our attention to para 13.1 and 13.2 of service agreement to submit that appellants have paid for maintenance of software service. He relied Supreme Courts decision in the case of TATA Consultancy Services Vs State of Andhra Pradesh - 2004-TIOL-87-SC-CT-LB.
4.1 On the man power recruitment and supply agency service, Ld. A.R submits that the adjudicating authority has rightly confirmed the service tax. He drew our attention to paras 21 & 27 of OIO where the appellants have admitted providing of man power service and also paid service tax accordingly. Regarding cenvat credit on the input services service, he submits that appellants are not eligible for cenvat credit as input services were not related to "output services" which is maintenance of computer software services.
5. In rejoinder, learned advocate countered the arguments and submits that Hon'ble High Court and Tribunal have consistently taken a view that maintenance of computer software is taxable only w.e.f. 1.6.2007. Prior to 1.6.2007, maintenance of software is not covered under the definition of "Maintenance or Repair Service".
5.1. On the man power recruitment service, Ld. counsel submits that they have all the documents and original invoices on the input services which can be readily verified. He submits that the adjudicating authority has not considered cum-tax benefit and also there is no suppression of facts and penalty cannot be imposed as the issue related to only interpretation of rules . The demand is also hit by limitation.
6. We have carefully considered the submissions of both sides and perused the records. The main issue to be decided in the present appeal relates to demand of service tax under the "Maintenance or repair Service" for the maintenance of computer software services rendered by the appellant and under the category of "Man Power Recruitment or Supply Agency Service". The adjudicating authority has confirmed the demand in respect of both the services and also appropriated part of the amount already paid by them in the impugned order in respect of both the services.
7. As regards the maintenance of computer software provided by the appellant, the period involved is July 2004 to March 2006. The adjudicating authority in the impugned order confirmed the service tax on the ground that there was specific Notification No.20/03-ST dt. 21.8.2003 which exempted service tax on the maintenance of software services and the said notification was withdrawn/rescinded by Notification No.7/2004 dt. 9.7.2004 and concluded that service tax is leviable on maintenance or repair of computer systems which includes maintenance of software. The Board has clearly clarified that software is considered as "Goods" under section 65 (64) of the Finance Act towards "Maintenance or Repair Service". The said Finance Act, 2007 brought an amendment by way of Explanation under "Management and Maintenance or Repair Service" that for the purpose of this clause, "goods" includes computer software. We find that the issue is already settled by the Hon'ble High Court of Madras in the case of M/s.Kasturi & Sons Ltd. Vs UOI (supra) and also Hon'ble Supreme Court's decision in the case of UOI Vs Martin Lottery Agencies Ltd. 2009 (14) STR 593 (SC). This Bench of the Tribunal in the case of Financial Software Systems Pvt. Ltd. Vs CST Chennai (supra) by relying Hon'ble Madras High Court's decision in the case of Kasturi & Sons Ltd. (supra) allowed the appeal of the assessee. The relevant paragraph of this Bench Tribunal's order is reproduced as under :-
"9.?Considered the arguments from both sides. We find that the issue whether maintenance of computer software could be subjected to Service Tax under the entry of Management, Maintenance or Repair services prior to 1-5-2006 was examined by the Honble Madras High Court in the case of Kasturi & Sons Ltd. (supra) and ruled that such demand is not maintainable. The decision of the Apex Court in the case of Martin Lottery Agencies Ltd. (supra), also is very emphatic to say that Explanation added under in taxation statutes causes adverse consequences to tax payers could have only prospective effect. Therefore case of Revenue as far as the first issue, is not maintainable."
The Principal Bench of this Tribunal in the case of VGL Softtech Ltd. Vs CCE Jaipur (supra) held the identical view. The ratio of above decisions including this Bench decision in the cases cited supra is clearly applicable to the facts of the present case as the period involved in the present appeal is July 2004 to March 2006 which is prior to the amendment brought under Section 65 of Finance Act. Therefore, the amendment cannot have retrospective effect prior to 1.6.2007. Accordingly, service tax demand in so far as maintenance of computer software service under "Maintenance or Repair Service" is liable to be set aside.
8. As regards service tax demand on Man Power Recruitment or Agency Supply Service, the adjudicating authority discussed the issue at length in his findings. The definition of "Man Power Recruitment or Agency Supply Service" is wide enough to include any commercial concern engaged in providing any service, directly or indirectly in any manner for recruitment or supply of manpower, temporarily or otherwise to a client. The appellant's contention is that they are not covered under Man Power Recruitment Service on the ground that they have not utilized the service and their another contention that providing of technical engineers from the company is only incidental to software service is not acceptable. Accordingly, the service tax demand in respect of Man Power Recruitment Service is sustainable.
9. We find that appellants also claimed cenvat credit on the input service utilized towards "Man Power Recruitment Service" during the period 10.9.2004 to 31.3.2006 whereas the adjudicating authority confirmed the demand of service tax but failed to give any findings on the admissibility of cenvat credit. We find that once it is held that service tax is payable on Man Power Recruitment Service, the appellants are entitled to avail cenvat credit on the input service subject to verification by the authorities on the admissibility of input service and also their claim upon submission of original records as per the provisions of CCR. We also find that appellants contended that service tax was demanded on the gross value of service, without allowing cum tax benefit. Since it is settled law that when service tax demanded the cum tax benefit is eligible, appellants are entitled to claim cum tax benefit on the total gross value of services on Man Power Recruitment Service.
10. As regards penalty imposed, since the demand confirmed under Man Power Recruitment Service, we find that appellants have already paid an amount of Rs.11,78,505/- before issue of SCN which was duly appropriated by the adjudicating authority and also considering that issue is of interpretation of rules of taxability, therefore, taking into overall facts and circumstances, we find that appellant's plea for waiver of penalty under Section 80 of Finance Act merits consideration. Accordingly, penalty imposed is liable to be waived.
11. In view of foregoing discussions, we hold that
(i) Demand of service tax on Maintenance of Computer Software under Maintenance or Repair Service is set aside. Impugned order is set aside to the extent of this demand and appeal is allowed with consequential relief.
(ii) Service tax demand on Man Power Recruitment or Supply Agency Service is upheld after allowing cum tax benefit. Out of total demand of Rs.16,61,679/-, the L.A. has appropriated the amount of Rs.11,78,505/- and for the balance demand and interest, we direct the L.A. to adjust from the amount of Rs.55,15,784/- already appropriated against maintenance and repair service.
(iii) Penalty is set aside.
Appeal is partly allowed in the above terms.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
gs
7