Custom, Excise & Service Tax Tribunal
M/S. Ibm India Private Limited vs The Commissioner Of Service Tax on 30 May, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT BANGALORE Appeal No:ST/55/2007 (Arising out of Order-in-Original No: 65/2006 dated 21.10.2006/02.11.2006 passed by the Commissioner of Service Tax, Bangalore.) 1. Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. IBM India Private Limited (Formerly known as IBM Global Services India Private Limited) Appellant Vs. The Commissioner of Service Tax Bangalore Service Tax Commissionerate Bangalore Respondent
Appearance S/Shri Mahesh Jai Singh and Kunal Wadhwa, Chartered Accountants, for the appellant S/Shri T.C. Raja Das and K. Sambi Reddi, Authorised Representatives (SDR/JDR) for the Respondent.
CORAM DR. S.L. PEERAN, HONBLE MEMBER (JUDICIAL) SHRI T. K. JAYARAMAN, HONBLE MEMBER (TECHNICAL) Date of Hearing: 24.04.2008 Date of decision:30.05.2008 FINAL ORDER NO._______________________2008 Per Shri T. K. Jayaraman This appeal has been filed against the Order-in-Original No. 65/2006 dated 02.11.2006 passed by the Commissioner of Service Tax, Bangalore.
2. S/Shri Mahesh Jai Singh and Kunal Wadhwa, the learned Chartered Accountants, appeared on behalf of the appellant. S/Shri T.C. Raja Das and K. Sambi Reddi, the learned Departmental Representatives represented the Revenue.
3. We heard both sides.
4. The issue involved is whether the services rendered by the appellant are entitled for the benefit of the Service Tax Notification No. 20/2003 dated 21.08.2003. The appellants entered into a contract with the Reserve Bank of India for comprehensive maintenance of hardware and software of the MICR Cheque Processing Solution with Imaging facilities. During the relevant period, which is actually from 01.08.2003 to 31.07.2004, the appellants did not pay the Service Tax and they claimed exemption under the above mentioned Notification 20/2003 dated 21.08.2003. The said Notification is reproduced below:-
Maintenance or repair services provided in relation to maintenance or repair of computers, computer systems or computer peripherals Exemption from Service tax 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 a customer by any person in relation to maintenance or repair of computers, computer systems or computer peripherals, from the service tax leviable thereon under section 66 of the said Act. 4.1 As can be seen, the above Notification exempts from Service Tax in respect of the taxable services provided to a customer by any person in relation to maintenance or repair of computer, computer systems or computer peripherals from the Service Tax. While the appellant claims exemption from payment of Service Tax under this Notification, the Department is of the view that the appellant is not entitled for the benefit of this exemption for the simple reason that it cannot be said that the services rendered are in relation to a computer or a computer system. The lower authority who passed the order has treated the entire system as a machine and denied the benefit of the exemption. For reaching such a conclusion and for denying the exemption Notification, the lower authority has relied on the Boards clarification with regard to the ATM machine. The said Boards Circular is reproduced below:-
The Board has received representations seeking clarification with regard to leviability of Service Tax in respect of maintenance & repair of ATMs in terms of Notification No. 20/2003-ST dated 21.08.2003.
2. The matter has been examined in the Board. It is clarified that computers are essentially data processing machines and their function is to process analog or digital data. There may be machines, which use such processed data to perform certain specified functions. These machines may involve processing of data but their principal function is not processing of data per se, but using such processed data for performing independent functions. These are not computers but are computerised machines. ATM is one such machine. For the purpose of Customs Tariff also, whereas computer falls under heading 84.73, ATMs fall under sub-heading 8472.90.
3. In view of the above stated facts, the Board has taken a decision that Automatic Teller Machine is not a Computer, Computer system or Computer Peripherals (all of which perform or aid primarily in, data processing per se) and thus their maintenance and repair does not fall under exemption Notification No. 20/2003-ST dated 21st August, 2003. Accordingly such services are liable for service tax. 4.2. It is seen that the above Circular indicates that ATM machines cannot be considered as computer or computer system. Some reasoning has been given by the Board. The Commissioner has drawn an analogy between the ATM machine and the system, which is under dispute and has come to the conclusion that the appellant is not entitled for the benefit of the said exemption. Therefore, Service Tax has been demanded along with penalties. The appellants strongly challenge the findings of the lower authority. Apart from relying on the Boards Circular, the lower authority and in fact, the Show Cause Notice also relies on the Final Order of this bench No. 1174/2004 dated 02.07.2004 in which the goods Refurbished Stacker Modules with Accessories were subject matter of classification and the Tribunal upheld the Departments contention and classified the machine under 8472.90 and its parts under 8473.40. This decision also has been relied on in the Show Cause Notice to show that the MICR Cheque Processing Solution is not a computer system and it is something like an ATM Machine for which Board has given clarification. On these two grounds, the lower authority has come to the conclusion that the appellants are not entitled for the benefit of the exemption Notification. It appears that he has not gone through all the submissions made by the appellant with regard to the system for which the appellant had undertaken the Annual maintenance Contract. In order to appreciate the factual situation, two hearings were given. The second hearing was held on April 24, 2008 during which the appellants gave very detailed write-up, brought the system along with lot of photographs, which we will make use of here to arrive at a proper conclusion.
4.3. The diagram of the MICR Cheque Processing Solution is given below:-
4.4. Further, the appellant submitted the photographs of the entire system. In all, there are 13 photographs. We are enclosing the copies of the photographs also and the photographs are as follows:-
(1) Server and data storage unit (2) Data storage unit (3) Server (4) Tape Drives (5) Back-up server (6) Server for RTGS operations (7) Document processor(containing the controller) (8) Document processor containing controller, reader and stackers (9) Additional PC servers (10) Networking equipments which are routers (11) & (12) computer Desktops (13) Computer printers 4.5. At this point, we can reproduce the relevant portions of the Agreement entered by the appellant with the Reserve Bank of India. In terms of the Agreement, the appellant is required to undertake the maintenance of the hardware and software for the MICR Cheque Processing Solution with imaging facilities at the national clearing cell RBI at the four locations of Mumbai, Delhi, Kolkata and Chennai. Article 9 of the Agreement is reproduced below:-
This Agreement shall come into force with effect from February 1, 2001 in respect of the hardware and system software under the MICR Cheque Processing solution part of the Solution at NCC, Mumbai and shall be in force continuously for a period of 12 months therefrom, to be renewed annually by the Purchaser for the agreed period of maintenance of 10 years, at a time for a period of 12 months only, by communicating to the Vendor in writing that the Purchaser has agreed to renew this Agreement for another period of 12 months, subject to the terms and conditions in this Agreement. This Agreement will also cover the comprehensive maintenance of the Stacker Modules under each Reader/Sorter at NCC, Mumbai inclusive of the IBM 4758 Crypto Card, personal computer system on which this Crypto Card has been installed and the IBM 2212 Router, one each at the Mumbai Regional Office, with effect from February 1, 2001. 4.6. On going through the above details and the write up given by the appellant and also after going through all the photographs and the functions of the system, it is very clear that the Stacker which is also part of the Document processor, is only a part of the entire system. In fact, the Document Processor consists the input and also the output device of the entire system. The output is the stacker in which the cheques are sorted finally on certain criteria, which may be bank-wise or branch-wise and all that. These details need not bother us. It is seen that the cheques are inserted in the input device of the computer system, i.e., in the reader where the MICR code is read. The information read by the input device is sent to the computer server for the purpose of processing. The computer server processes the information and sends the processed information to the output device, i.e., the sorter. Based on the instructions from the computer server, the output device (i.e. the sorter) shall move the cheques into the output device holding the cheques (i.e., the stackers). It has been stated that various other functions are performed by the other servers (like back up servers, RTGS server, additional servers) and various other peripheral devices in the entire system. Therefore, on going through the working of the system, it is seen that it is not something like an ATM machine. The stacker is only a part of the system. It is not the whole of the system. Relying on the clarification given in respect of ATM and also the classification of the document processor decided by this Tribunal, the Revenue has jumped to the conclusion that the entire system is a machine and it cannot be considered as a computer system. In this connection, the appellant has given the definition of the computer system. In the Central Excise Act, the computer system is not defined. In terms of Section 2 of the Information Technology Act, a computer or a computer system is defined in the following manner.;
A device or collection of devices, including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files which contain computer programmes, electronic instructions, input data and output data that performs logic, arithmetic, data storage and retrieval, communication control and other functions. Further, the Wikipedia defines computer system in the following manner.
A computer system is the combination of hardware and software. A typical computer system has memory and set of states that define the relationship between the systems, inputs and outputs.
There are other definitions also. On going through these definitions of the computer system and also the write up given by the appellant, we are of the considered view that the entire system as a whole is definitely a computer system. Further, in the Agreement itself, the total cost of maintaining the entire system is given. They have given the maintenance cost in respect of the stacker module also. When we go through those figures, the stacker modules themselves, their maintenance chares are only 8% of the total cost. These figures are as follows:-
While the consideration towards maintenance of stackers is Rs. 44,27,034/-, the consideration towards maintenance of the main frame systems and other peripherals is Rs. 3,92,45,530/-.
But, the learned adjudicating Authority has demanded Service Tax on the entire amount. If at all the learned Adjudicating Authority had decided that the stacker is not a part of the computer system, relying on the Boards clarification regarding ATM and also the decision of this Tribunal, then he should have limited himself to demanding Service Tax only on the maintenance charges of stackers. However, even with regard to the high end servers and various other system equipments, he had demanded Service Tax holding that they are all not part of the computer system or they are not computer system but are only a machine like ATM. This approach is totally wrong. We find that equipments supplied by the appellant under the Agreement primarily contained high end computer server along with various other computer peripherals. The stacker modules or the document processor is only a part of the system connected to the main frame system. In fact, the stacker module is an output device. It is a part of the document processor, which also contains the input device. Their functions had already been explained. Hence, the demand of Service Tax for the relevant period holding that they are not computer system, in our view, is not correct. On going through the write up, we are of the considered view that the entire MICR Cheque processing Solution consists of a computer system and it cannot be equated or compared with an ATM machine. Even if the classification of the Document Processor whatever it be by this Tribunal in the said final order, cannot justify the demand of service tax on the entire computer system especially when the same is exempted during the relevant period.
5. Summing up, we hold that the MICR Cheque Processing Solution consisting of the mainframe system, S/390 Imaging hardware system, software and document processor including the stacker modules should be considered as a computer system during the relevant period and the appellants are rightly entitled for the benefit of the exemption Notification. Hence, we allow the appeal with consequential relief.
(Pronounced in open Court on 30th May, 2008) (T.K. JAYARAMAN) Member(T) (S. L. PEERAN) Member(J) /pr/