Custom, Excise & Service Tax Tribunal
Persistent Systems Ltd vs Pune Iii on 18 August, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/470/2012
APPLICATION NO: ST/MA((Ors.)-94129/2015
[Arising out of Order-in-Original No. 46/P-III/ST/COMMR/2011-12 dated 21/03/2012 passed by the Commissioner of Central Excise & Service Tax, Pune III.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Persistent Systems Ltd.
Appellant
versus
Commissioner of Central Excise & Service Tax
Pune III
Respondent
Appearance:
Shri Prasad Paranjape, Advocate for the appellant Shri K.S. Mishra Addl. Commissioner (AR) for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 18/08/2015 Date of decision: 10/02/2016 ORDER NO: ____________________________ Per: C J Mathew:
Pursuant to order-in-original no 46/PIII/ST/COMMR/2011-12 dated 21st March 2012, M/s Persistent Systems Ltd is before us seeking to quash the demand of tax and interest therein, appropriation of the amounts paid by appellant before issue of the show cause notice, and imposition of penalties under section 77 and 78 of Finance Act, 1994.
2. Though the impugned order relates to confirmation of demand of tax for rendering of maintenance and repair services for the period from 15th March 2005 to 31st December 2007 and of support services of business or commerce for the period from 1st May 2006 to 30th September 2007, the dispute of the appellant is limited to the tax of ` 37,32,184/- demanded for the former as well as the penalties imposed in the impugned order.
3. The appellant is a unit registered under the Software Technology Park scheme in the Foreign Trade Policy notified under the Foreign Trade (Development & Regulation) Act, 1992 and services many clients situated overseas by developing software for them, executing on-site software engineering consultancy and customising their own products for licencees. The clients require regular upgrading and enhancement of software installed on their systems to enable optimum performance for which they enter into maintenance contracts with the appellant. The servicing is carried out by employees in the Software Technology Park facility who use the internet to access the remote system and work on the remote installations. It is the consideration received in accordance with these contracts that are in dispute.
4. The primary contention of the appellant is that the tax is not leviable in relation to software for the period to which the dispute pertains. According to them information technology software service for use in the course, or furtherance of business or commerce was made taxable by section 65 (105) (zzzze) of Finance Act, 1994 only from 16th May 2008 and hence any activity in connection with such was not exigible to tax. Learned Counsel for appellant placed reliance on the decision of the Tribunal in SAP India Pvt. Ltd v. Commissioner of Central Excise Bangalore [2011 (21) STR 303 (Tri-Bang)] which placed all activities relating to maintenance of software within the coverage of section 65(64)(ii)(b) and not the head under which the demand has been confirmed in the impugned order.
5. The Tribunal after examining the various amendments and the taxability of information technology software reasoned that with the introduction of tax by section 65(105)(zzzze) on information technology software, legislative intention to distinguish between this and computer software is unambiguously clear and as all the circulars and decisions hitherto existing related to computer software those were not applicable to the activity performed by the service provider in re SAP India Pvt Ltd.
6. Learned Authorized Representative places reliance on the circular no 81/2/2005-ST dated 7th October 2005 of Central Board of Excise & Customs that superseded no 70/19/2003-ST dated 17th December 2003; the clarification in the latter that maintenance of software was not taxable under section 65(105)(zzg) of Finance Act, 1994 was held to be no longer valid after the decision of the Honble Supreme Court in Tata Consultancy v State of Andhra Pradesh [2004(178) ELT 22(SC)] holding that canned computer software is goods. Further reliance was placed on the decision of the Honble Supreme Court in Bharat Sanchar Nigam Ltd v Union of India [2006 (2) STR 161 (SC)].
7. We note that the demand has been made in connection with provision of maintenance or repair service till December 2007 and that the activity that has been held to be taxable in the impugned order is that of maintenance of software installed at the overseas sites of their clients. That it is maintenance of software on computer systems located overseas is not in dispute. Considering the plea of the appellant that information technology software service was not taxable during the period of dispute, the scope of taxability for rendering maintenance or repair services as well as the issue settled by the Tribunal in re SAP India Pvt Ltd needs to be examined to resolve the dispute before us.
8. With effect from 1st July 2003 maintenance or repair service was taxable as per section 65(105)(zzg) of Finance Act, 1994 with maintenance or repair defined in section 65(64) therein. The definition underwent a change on 16th June 2005 which is not germane to the present dispute. The taxable service was expanded to management, maintenance or repair with effect from 1st May 2006 as below:
management, maintenance or repair means any service provided by
(i) any person under a maintenance contract or agreement; or
(ii) ..
in relation to
(a) management of properties, whether immoveable or not;
(b) maintenance or repair of properties, whether immoveable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods .. and the Explanation therein with effect from 16th May 2008 read as:
For the removal of doubts, it is hereby declared for the purposes of this clause
(a) goodsincludes computer software;
(b) properties includes information technology software
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 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-ST dated 7th October 2015 of Central Board of Excise & Customs which was issued consequent to the decision of the Honble 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 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 oHHoHonHHonble 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 Honble 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.
12. The Honble Supreme Court in re Tata Consultancy cited supra had upheld the finding of the Honble High Court of Andhra Pradesh that definition of goods in the Andhra Pradesh General Sales Tax Act, 1957 included canned software. While disposing off the contention that canned software was the same as other software, the decision deliberately desisted from refining upon the difference thus:
25. At this stage it must be mentioned that Mr. Sorabjee had pointed out that the High Court has, in the impugned Judgment, held as follows:
".......In our view a correct statement would be that all intellectual properties may not be 'goods' and therefore branded software with which we are concerned here cannot be said to fall outside the purview of 'goods' merely because it is intellectual property; so far as 'unbranded software' is concerned, it is undoubtedly intellectual property but may perhaps be outside the ambit of 'goods'".
[emphasis supplied]
26. Mr. Sorabjee submitted that the High Court correctly held that unbranded software was "undoubtedly intellectual property". Mr. Sorabjee submitted that the High Court fell in error in making a distinction between branded and unbranded software and erred in holding that branded software was "goods". We are in agreement with Mr. Sorabjee when he contends that there is no distinction between branded and unbranded software. However, we find no error in the High Court holding that branded software is goods. In both cases, 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. We, however, are not dealing with this aspect and express no opinion 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. The decision of the Honble High Court for coverage of canned software alone has been concurred with in re Tata Consultancy.
13. The articulation of legislative intent sought to be derived from this decision by the Central Board of Excise & Customs may not be tenable to the extent that it exceeds the compass of the cited decision. Therefore, the cited circular, relying as it does on the cited decision, does not permit for taxability of any software other than canned software and reliance on that circular cannot appreciably sustain the findings in the impugned order.
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).
15. The decision of the Honble High Court of Andhra Pradesh would, therefore, persuade us that software, other than canned would not be amenable to description as computer software which is essential to start up and run the core programs of a system. Information technology software is essential for smooth running of the business activities of the user. Thus the clients of the appellant in this case would be users of information technology software and hence any maintenance of that software would be taxable only after 16th May 2008 as decided by this Tribunal in re SAP India Pvt Ltd.
16. Proceeding further, we find that the original authority has omitted to take into account the status of the appellant as the holder of a Letter of Permission under the Software Technology Park Scheme. The coverage of the activity of the appellant under the Export of Service Rules, 2006 also cannot be ignored. The appellant renders services that enhance the performance and efficiency of the systems on which the software that impacts the business of the overseas client is installed. The employees of the appellant would not be able to fulfill the contract without operating the software which is located outside India. Their physical location in India is merely an accident of economics. Undeniably, a part of the service is rendered outside the country which is sufficient for the appellant to derive the benefit of exemption from tax as an exporter of service.
17. The demand under maintenance or repair services in the impugned order does not survive. The non-disputed demand is comparatively minor and, considering the promptitude displayed in paying the tax, we do not consider it necessary to uphold the penalties in view of section 73(3) of Finance Act, 1994.
18. For the above reasons, the appeal is allowed. The Miscellaneous application is disposed of as withdrawn.
(Pronounced in Court on 10/02/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 11