Custom, Excise & Service Tax Tribunal
Network Solutions Pvt Ltd vs Bangalore Service Tax- I on 18 February, 2026
ST/3166/2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 3166 of 2011
(Arising out of Order-in-Original No.153/2011 dated 21.09.2011
passed by the Commissioner of Service Tax, Bangalore.)
M/s. Network Solutions Private
Limited Appellant(s)
17th Main, 6th Block,
Koramangala,
Bangalore - 560 095.
VERSUS
The Commissioner of Service Tax
No.16/1, 5th Floor,
SP Complex,
Lalbagh Road,
Respondent(s)
Bangalore.
APPEARANCE:
Mr. Harish Bindumadhavan, Advocate for the Appellant. Mr. M. A. Jithendra, Assistant Commissioner (AR) for the Respondent.
CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) FINAL ORDER NO. 20158 / 2026 DATE OF HEARING: 20.08.2025 DATE OF DECISION: 18.02.2026 PER: D.M. MISRA This is an appeal filed against Order-in-Original No.153/2011 dated 22.09.2011 passed by the Commissioner of Service Tax, Bangalore.
2. Briefly stated the facts of the case are that the appellants are engaged in rendering various services like Business Auxiliary Page 1 of 15 ST/3166/2011 Service; Management, Maintenance or Repair service; Commissioning and Installation service during the relevant period. On the basis of audit of their financial records, it came to the knowledge of the department that appellant had provided computer facilities, management service to certain clients during the period from 01.5.2006 to 15.05.2008 which do fall under the taxable service of Management, Maintenance or Repair service; however, failed to discharge service tax of Rs.4,50,15,137/- during the said period claiming its classification under Business Auxiliary Service falling under the exclusion clause of Information Technology service. Consequently, show-cause notice was issued to the appellant on 29.09.2010 invoking extended for recovery of the service tax of Rs.4,50,15,137/- with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. Hence, the present appeal.
3. At the outset, the learned advocate for the appellant has submitted that the show-cause notice issued on 29.09.2010 for recovery of Service Tax for the period from 1st May 2006 to 15th May 2008 is barred by limitation as during the said period the appellant had duly disclosed the services rendered by them in their ST-3 returns filed with the department claiming its classification under Business Auxiliary Service. They have been filing regularly all declarations and returns as required by the law and the present demand is based on verification of books of return filed by the appellant; also all these facts were within the knowledge of the department since their records were audited by the authorities in January 2005, for the period from July 2001 to September 2004 and in February 2006, for the period from October 2004 to March 2005. In support of their contention that the demand is barred by limitation, they referred to the judgment of the Hon'ble Supreme Court in the case of Uniworth Textiles Ltd. vs. CCE, Raipur: 2013 (288) ELT 161 (SC).
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4. Assailing the impugned order, he has submitted that on merit, the appellants are providing computer Facility Management Services to its clients. The said service relates to server management, Wide Area Network (WAN) and Local Area Network (LAN) management. Referring to scope of work mentioned under the work order to Karnataka Bank Limited and also agreement with Metro Cash and Carry Private Limited, he has submitted that the facility management service provided by the appellant to its clients relating to operation and management of the client's IT infrastructure, which cannot be considered as Management, Maintenance or Repair service. The appellant's service pertaining to management of client's entire computer network as a whole and does not per se involve maintenance or repair of equipments that forms part of the computer network. Consequently, the appellant as per their understanding classified these services under Business Auxiliary Service and service tax was not paid on these services during the period being in the nature of Information Technology Service as defined under Business Auxiliary Service which expressly excluded IT services from the scope of levy of service tax. The definition of the Business Auxiliary Service which was amended with effect from 16.05.2008 and the words "any information technology service"
has been deleted from the scope of Business Auxiliary Service which indicate that the services cannot be taxed under any other category. In support, they referred to the judgment in the case of Lal Path Labs vs. CCE: 2006 (4) STR 527 (Tri.-Del.). Further, he has submitted that Facility Management Service are in relation to system network and primarily in operation of computer system and undoubtedly, they are classified under Information Technology Service. Similar service had been considered and held to be covered under the scope of Page 3 of 15 ST/3166/2011 Information Technology Service by the Tribunal in its series of judgments. They referred to following decisions:
• Bellary Computers vs. CCE: 2007-TIOL-1856-CESTAT Bangalore • Dataware Computers vs. CCE: 2008-TIOL-1433-CESTAT Bangalore • CCE vs. Deloitte Tax Services India Pvt. Ltd.: 2008-TIOL- 629-CESTAT Bangalore
5. Also, they referred to the CBEC Circular No.62/11/2003-ST dated 21/08/2003 which had clarified that the services rendered by the appellant are in the nature of IT services and fall outside the scope of service tax. Further, he has submitted that in any case the Facility Management Service would not fall under the scope of Management, Maintenance or Repair service and the Circular No.81/2/2005-ST dated 07.10.2005 referred to and relied by the Commissioner in confirming the demand is read out of context, hence the order is bad in law. He has submitted that this Tribunal in the case of United Telecom Ltd. vs. Commissioner of Service Tax: 2009 (14) STR 212 (Tri.-
Bang.) held that WAN and LAN refer to network of interconnectivity computers spanning wide areas or localized sites, hence, cannot be considered as an immovable property. Also, in support, he referred to the judgment in the case of IBM India Pvt. Ltd. vs. CCE: 2024 (23) CENTAX 243 (Tri-Bang.) and Hewlett Packard India Sales P. Ltd.: 2015 (9) TMI 990 (CESTAT-Bang.).
6. Per Contra the learned Authorised Represented (AR) for the Revenue reiterating the findings of the learned Commissioner submitted that as held in Tata Consultancy Services vs. State of Andhra Pradesh: 2004 (178) E.L.T. 22 (S.C.) held that software qualifies as goods and hence, fall within the definition of Management, Maintenance or Repair service and liable to service tax. It is the contention that where service Page 4 of 15 ST/3166/2011 contract involves managing and actively maintaining or repairing IT infrastructure, the same are taxable under Management, Maintenance or Repair service. Further, he has submitted that the exclusion of 'information technology service' as mentioned in the Business Auxiliary Service till 15/05/2008 covers only those activities which are primarily in relation to operation of computer systems, maintenance of software but not the physically upkeep of the hardware or network infrastructure. In support, he referred to the judgment in the case of Dell International Services India Pvt. Ltd. vs. CCE, Bangalore: 2010 (17) S.T.R. 540 (Tri.-Bang.). Further, he has submitted that principle of classification and dominant nature test be considered while deciding classification of composite service as per section 65A of the Finance Act 1994. He has submitted that it is a settled position of law that classification must reflect the most specific description or essential character of the service rendered; Facility Management contracts are not composite contracts with equal IT or non-IT service; rather having the character of management and physical upkeep of IT infrastructure. Further, he has submitted that suppression of fact has been rightly been invoked in the present case as appellant had not declared service provided during the relevant period under the appropriate taxable head nor sought clarification from the department despite earlier audit.
7. Heard both sides and perused the records. The issues involved in the present appeal for consideration are:
(i) whether the services rendered by the appellant fall under the scope of 'Business Auxiliary Service' as claimed by the appellant or 'Management, Maintenance or Repair service' as alleged by the Revenue.Page 5 of 15
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(ii) whether the demand is barred by limitation The appellants are providing Facility Management Services for servers and networking under different agreements to Karnataka Bank Limited and Metro Cash and Carry India Limited.
8. The brief scope of service provided to Karnataka Bank Limited as per agreement are as follows:
NETWORK Facility Management Services:
1. WAN & LAN Management at Data Centre, Bangalore & Head Office, Mangalore.
2. WAN Management for all the Regional Network (cluster) centers, branches (includes the new branches to be added during the contract period and also includes the link commissioning etc.).
3. Vendor Management, Inventory Management for the products/services related to networking.
4. Link support for an average of 375 branches SERVER Facility Management Services:
1. Server Management at Data Centre Bangalore and Head Office Mangalore (includes all the existing servers and the new servers to be added during the contract period).
2. Vendor Management, Inventory Management for the products/services related to servers.
9. Likewise, network support provided to Metro Cash and Carry Limited are as follows:
SUPPORT DELIVERABLES SERVICE DESK (HELP DESK) SERVICES SCOPE OF WORK Service Desk services are centralized at Yeshwanthipur & would cater to users at both Yeshwanthpur and Kanakapura Road.
Other than at Bangalore, across new stores at different locations in India, Service Desk services are centralized at the location classified as Main Location by Metro Cash & Carry, India & would cater to users at all sub- locations.Page 6 of 15
ST/3166/2011 • Assignment of open calls to the relevant support staff based on priority levels • Calls once assigned, to be closed by the FM engineer via telephone/ (Helpdesk Tool).
• Ownership of relevant technical problems related to users, thus:
➢ Follow up with respective support staff if cal is not attended to within specified time.
➢ Ensure that calls that are put on hold are resolved on attaining necessary Information/hardware etc. ➢ Escalation of calls that are not attended by the support staff to both NetSol and Metro Cash & Carry Personnel ➢ Escalate calls to vendors/ specialists as per the nature of the call. ➢ End user kept updated about the progress of relevant issue.
• Closure of resolved calls.
➢ Calls tracked until closure and the same entered into the Call Booking Form.
➢ Calls closed after cross checking with the user who reported the call.
• Calls that arise on a regular basis would be tracked and escalated to the Management at Metro Cash & Carry.
• Adherence to defined policies • Maintain records of all reported calls for the last quarter and the same to be provided during the service desk Audit. • Provide a Single point of Contact for all call related issues. All such calls received would be submitted as a report during Audit process.
VENDOR CO-ORDINATION SERVICE OBJECTIVE:
To form the interface between Metro Cash & Carry and Vendors providing IT related services to Metro Cash & Carry.
SCOPE OF WORK:
Vendor co-ordination service would cover all the IT related vendors of Metro Cash & Carry Including NetSol.
DELIVERABLES:
• Maintain database of various vendors with details like contact person, telephone numbers, escalation matrix, response time and resolution time • Log calls with vendors • Coordination with the vendors for optimal performance and resolution of problems • In case of hardware failures, which are out of warranty, take quotations from atleast three vendors and submit the same to concerned department within • Metro Cash & Carry.Page 7 of 15
ST/3166/2011 • Installation support on receipt of necessary equipment Escalation of user calls to hardware/software vendors • Tracking vendor response against defined SLA's with the vendor • Keeping track of hardware and software maintenance contracts entered into by • Metro Cash & Carry with the various vendors • Follow up to ensure completeness of resolution
10. The summary of services provided by the appellant to Karnataka Bank Limited and Metro Cash and Carry are as follows:
• Co-ordination with vendors of equipments to keep the equipments running at all points in time, • Perform LAN administration and related security functions. This includes providing LAN server administration services for servers including user registration, creating and maintaining user profiles, granting user access and authorization, providing ongoing user password support, announcing and providing new networking services for users, and providing administrative support for in scope server (eg, print, file, directory, e- mail, proxy, intranet, extranet), etc • Perform problem management tasks including server monitoring, problem identification, reporting, logging, tracking, resolution, reloading, communication and escalation for problems. This would include monitoring the server performance with standard performance indicators and providing periodical reports • Provide advice on necessary system configurations and modifications. Capacity planning including monitoring of current systems capacity utilization and projection of future requirements • Providing help desk services to the employees (end users) of the customer who require assistance in the resolution of problems, concerns and questions and to appropriately escalate it to the concerned persons for resolution • Network station management services which include deskside support, office automation software support, software distribution, infrastructure server management including file and print server and email server administration, etc. • To sum up, the services are in relation to computer facility management, system networking and primarily in relation to operation of computer systems. Many companies undertake this activity by hiring IT engineers in-house, while some others outsource the work to companies like the appellants.
• The agreements executed by the appellants are towards management of the entire computer network of the customer as a whole. In other words, the agreements are not towards maintenance or repair of the equipments Page 8 of 15 ST/3166/2011 forming part of the computer network. It may be noted that there are no activities performed towards maintenance or repair of computer facilities.
• The appellant claim that the aforesaid services provided by them fall within the scope of height service excluded from the business auxiliary service has defined during the relevant.
11. The appellant has argued that various services rendered by them are nothing but IT Services which fall under the exclusion clause of Business Auxiliary Service. During the disputed period, the definition of 'Business Auxiliary Services' under Section 65(19) read as follows:
"Business Auxiliary Service" means any service in relation to-
(i) Promotion or marketing or sale of goods produced or provided by oг 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) Procurement of goods or services, which are inputs for the client; or Explanation: For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client.
(v) Production and processing of goods for, on behalf of the client; or
(vi) Provision of service on behalf of the client; or
(vii) A service incidental or auxiliary to any activity specified in sub-
clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relations services, management or supervision, And includes services as a commission agent, but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).
12. The meaning of "Information Technology Service"
prescribed as:
As per Explanation (b), information technology service is defined as:
"any service in relation to designing or developing of computer software, or system networking, or any other service primarily in relation to operation of computer systems"Page 9 of 15
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13. The claim of the Revenue that aforesaid service fall within the scope of 'Management, Maintenance or Repair Service' as defined under Section 65(64) of the Finance Act, 1994, which reads as follows:
"65(64) Management, Maintenance or Repair," means any service provided by-
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,-
(a) management of properties, whether immovable or not;
(b) maintenance or 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;
14. A close analysis of the services rendered by the appellant and the definition of 'Business Auxiliary Service' vis-à-vis 'Management, Maintenance or Repair Service' it leaves no doubt that the scope of various services bundled together is also for maintenance of computer infrastructure facility which could be said to be an ancillary work to the main service i.e., IT Service, hence, it cannot make the computer facility management service as 'Repair and Maintenance service' in view of the principles of classification of Taxable Service laid down under Section 65A, which is reproduced as below:
Section 65A: Classification of taxable services.-
(1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65;
(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub- clauses of clause (105) of section 65, classification shall be effected as follows:-
(a) the sub-clause which provides the most specific description shall be preferred to sub- clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service Page 10 of 15 ST/3166/2011 which gives them their essential character, in so far as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.
"(3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint.";
15. The Hon'ble Supreme Court in the case of Commissioner of Customs vs. Federal Bank Limited: 2016 (3) TMI 354 - SC while considering the scope of Cash Management Service analyzing the aforesaid proviso and observed that when for any reason, a taxable service is, prima facie, classifiable under two or more sub-clause of clause (105) of Section 65, classification shall be effected in the prescribed manner laid down under the said provision. Following the principle laid down in the said case, we find clause(b) is more appropriately applicable in determining the classification of the composite service rendered by the appellant in the present case which includes an insignificant proportion of maintenance of computer network. Thus, the service rendered by the appellant cannot fall under taxable category of 'Management, Maintenance or Repair Service' as alleged by the Revenue and confirmed by the commissioner.
16. On the issue of limitation, we find that in the show-cause notice it has been alleged that the classification issue would not have come to the notice of the department but for the audit observation. We find that in the similar type of allegation, whether suppression is involved, has been addressed by the Tribunal in the case of Raghuvar (India) Ltd. vs. CCE: 2023 (1) TMI 932 - CESTAT-New Delhi. After analyzing the gamut of case, it is held that as follows:
"8. We first proceed to decide on the question of limitation. The period of dispute is 2006-2007 to 2008-2009 and the show cause notice was issued on 12.04.2011. During the relevant period, the normal period of limitation Page 11 of 15 ST/3166/2011 was one year. The show cause notice was issued clearly beyond the period of one year and the proviso to section 73 (1) was involved. In this regard, it would be necessary to examine the relevant portion of Section 73, which reads as follows :-
"SECTION 73. Recovery of service tax not levied or paid or short- levied or short-paid or erroneously refunded -
(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of -
(a) fraud ; or
(b) collusion; or
(c) wilful mis-statement ; or
(d) suppression of facts ; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "one year", the words "five years" had been substituted".
9. As may be seen, the demand could only be raised within a period of one year from the date unless the short payment of service tax was by reasons of (a) fraud or (b) collusion or (c) wilful mis-statement or (d) suppression of facts or (e) contravention of any of the provisions of Chapter V of the Finance Act or the rules made thereunder with intent to evade payment of service tax.
10. The reasons for invoking extended period of limitation in the show cause notice are in paragraph 8, which reads as follows:-
Page 12 of 15ST/3166/2011 "8. Whereas, the assessee has not paid service tax amounting to Rs. 3,99,903/- on the services provided during the period 2006 2009. Had the audit not been conducted it would not have come to the knowledge of the department that the assessee has not deposited the service tax correctly. Therefore, it is clear that the assessee has wilfully suppressed the value of taxable services during the said period from the Department and thereby contravened the provisions of Section 67, 68 & 69 of the Finance Act, 1994 read with Rule 4 & 6 of the Service Tax Rules, 1994 with intent to evade payment of service tax. Therefore, for recovery of service tax not paid by the assessee, extended period under proviso to Section 73 (1) of the Finance Act, 1994 is invokable. The interest on the service tax amount not paid is also recoverable under Section 75 of the Finance Act, 1994".
11. The reason for invoking extended period of limitation given by the Assistant Commissioner in the order-in-original is as follows :-
"I find that, if the audit has not been conducted it would not have come to the knowledge of the department that the assessee had not deposited the service tax correctly. Therefore, the assessee had willfully suppressed the value of taxable services during the said period from the Department. Therefore, extended period under proviso to Section 73 (1) of the Finance Act, 1994 for recovery of service tax, is correctly invokable and the same is recoverable with interest on the service tax amount not paid is also recoverable under Section 75 of the Finance Act, 1994."
12. The reasons for invoking extended period of limitation given by the Commissioner (Appeals) in the impugned order is as follows :-
"I also observe that if the audit of the unit had not been conducted it would not have come to the knowledge of the department that the appellant had not deposited the service tax correctly. Therefore, it is clear that the appellant had willfully suppressed the value of taxable services during the period from the Department and therefore, extended period under proviso to Page 13 of 15 ST/3166/2011 Section 73 (1) of the Finance Act, 1994 for recovery of service tax, is invokable. Since extended period is invokable therefore penalty provisions also correctly applicable".
In view of the above, the appeal succeeds both on merit and limitation.
17. We find that the Commissioner while quoting the Circular F.No.334/1/2003-TRU dated 28.02.2003 and subsequent Circular No.81/2/2005-ST dated 07.10.2005 observed that the services rendered by the appellant would fall under the scope of maintenance or repair service. The relevant Circular dated 28.02.2003 reads as follows:
"2.1 The definition of Business Auxiliary Service in the law excludes the Information Technology (IT) baa services. As per the definition IT 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. It was clarified in Circular No.59/8/2003, dated 20th June 2003 that only if the output service provided by a service provider is in the nature of the above operations, such exclusion would operate. The mere fact that a personal computer or a laptop has been used for providing the service does not, ipso facto, make the service an information technology service. Similarly, the fact that any of the IT services has been used by the service provider as an input service does not automatically make the output service an IT service, 2.2 A doubt has been raised that the clarification in the said circular dated 20-6-03, is at odds with the letter F.No.334/1/2003-TRU dated 28- 2-2003 which states, "However computer enabled services, namely, data processing, networking, back office processing, computer facility management shall not be subjected to Service Tax." It is claimed that back office processing may include accounts outsourcing or payroll- processing activities etc. and such service may not be primarily in relation to computer system.Page 14 of 15
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18. In the present case, the services rendered by the appellant are not in the nature of using computers for providing services; whereas they are providing server management, Wide Area Network (WAN) and Local Area Network (LAN) management and its maintenance and other related services, therefore, the interpretation of the Circular by the learned Commissioner is incorrect.
19. In view of the above discussions, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Order pronounced in Open Court on 18.02.2026.) (D.M. MISRA) MEMBER (JUDICIAL) (R. BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 15 of 15