Custom, Excise & Service Tax Tribunal
Vodafone Cellular Limited vs Coimbatore on 29 April, 2019
1
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
Regional Bench - Court No. III
Service Tax Appeal No. 545 of 2012
(Arising out of Order-in-Appeal No. 104/2012 dated 21.05.2012 passed by the
Commissioner of Customs, Central Excise & Service Tax (Appeals), 6/7, A.T.D.
Street, Race Course Road, Coimbatore - 641 018)
M/s. Vodafone Cellular Ltd., : Appellant
No. 1046, Avinashi Road,
Coimbatore - 641 018
VERSUS
The Commissioner of G.S.T. & Central Excise, : Respondent
Coimbatore Commissionerate, 6/7, A.T.D. Street, Race Course Road, Coimbatore - 641 018 APPEARANCE:
Ms. Krithika Jaganathan, Advocate for the Appellant Ms. T. Usha Devi, Authorized Representative for the Respondent CORAM:
HON'BLE MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL) HON'BLE MR. MADHU MOHAN DAMODHAR, MEMBER(TECHNICAL) FINAL ORDER NO. 40702 / 2019 DATE OF HEARING: 19.03.2019 DATE OF DECISION: 29.04.2019 PER BENCH :
Brief facts are that the appellants are engaged in providing Telecom Services to their customers. They received services like Technical Consultancy Services, Maintenance and Repair Services and Business Support Services from foreign service providers, but had not paid service tax on their same as required under reverse charge mechanism.
2. A Show Cause Notice was issued raising the above allegations and after due process of law, the Original Authority confirmed the demand of Rs. 16,04,982/- as service tax along with interest and also imposed equal 2 penalty under Section 78 of the Finance Act, 1994. The amount already paid by the appellant was ordered to be appropriated. In appeal, the Commissioner (Appeals) vide impugned order dated 21.05.2012 upheld the same. Hence, this appeal.
3.1 On behalf of the appellant, Ld. Advocate Ms. Krithika Jaganathan appeared and argued the matter. The appellant receives various services from foreign service providers situated abroad. The transactions on which the demand is raised are described as under :
(a) Services of Online Maintenance of Software: The appellant procured services of online maintenance of software from M/s. LHS Verwaltungs GMBH & Co., Germany. The scope of services included upgradation of existing software, maintenance and support for installed software, repairs, etc.
(b) Services of International Outbound Roaming: The appellant received services of International Outbound Roaming facility from Foreign Telecom Operators such as M/s. Teleglobe Canada, Comfone, etc. Under an International Roaming Agreement, the appellant's subscribers could avail and utilize the network services of the Foreign Telecom Operator for the time that the subscriber was outside India (within the network territory of the Foreign Telecom Operator).
(c) Services of Development and Supply of Value-Added Content: The appellant received services for supply of content such as cartoons, music videos, ring tones, etc., from foreign service providers such as M/s.
Player One Ltd., M/s. Microsoft Corporation Ltd., etc. 3.2 The demands raised in the Show Cause Notice are tabulated and explained by the Ld. Advocate for the appellant as under :
Sl. Classification of Activity Period Demand
No. Demand (INR)
1. Management, Maintenance Repair of software 2006-07 6,65,241/-
or Repair Services
2. Business Support Services International Outbound 2007-09 4,30,258/-
Roaming Services 3
3. Development and Supply Development of games 2008-09 5,09,483/-
of Value-Added Services
TOTAL 16,04,982/-
3.3.1 It is submitted by the Ld. Advocate that the demand of service tax on online maintenance of software under the category of 'Management, Maintenance or Repair' is not tenable. The service tax has been demanded on the activity of online maintenance and repair of software received from service providers situated outside India. During the relevant period i.e., from 2006-07, the definition of Management, Maintenance or Repair Services as under Section 65(64) of the Act was amended vide the Finance Act, 2007 with effect from 01.06.2007 wherein an explanation was inserted declaring "goods" to include computer software also. The Department is raising the demand alleging that the activity of online maintenance and repair services of software would be in the nature of "goods" and therefore, the appellant is liable to pay service tax under reverse charge mechanism. In fact, the said amendment takes effect only from 01.06.2007. The impugned period being prior to this, the demand cannot sustain.
3.3.2 She relied upon the following decisions :
(i) M/s. Phoenix IT Legal Solutions Ltd. Vs. C.C.E., Visakhapatnam - 2011 (22) S.T.R. 400 (Tri. - Bang.)
(ii) M/s. Phoenix IT Solutions Ltd. Vs. C.C.E., Cus. & S.T., Visakhapatnam-I -
2017 (52) S.T.R. 182 (Tri. - Hyd.)
(iii) M/s. Larsen & Toubro Infotech Ltd. Vs. C.S.T., Mumbai-II - 2017 (4) G.S.T.L. 271 (Tri. - Mum.) 3.3.3 The Commissioner (Appeals) has relied on Circular No. 81/2/2005-ST dated 07.10.2005 to conclude that the service tax on maintenance and repair of computer software is leviable from 09.07.2004 since the exemption granted earlier vide Notification No. 20/2003-ST was rescinded. It is pointed out by the Ld. Advocate for the appellant that the Hon'ble High Court of Madras in M/s. Kasturi & Sons Ltd. Vs. Union of India reported in 2011 (22) S.T.R. 129 (Mad.) has declared this Circular dated 07.10.2005 to be ultra vires and has quashed the same. Therefore, 4 the demand of service tax on maintenance and repair of software for the period prior to 01.06.2007 is unsustainable and requires to be set aside.
3.4.1 The second issue is with regard to the demand of service tax under 'Business Support Services'. The demand has been confirmed on the activity of International Outbound Roaming services received by the appellant from Foreign Telecom Operators abroad. The Department alleges that the Foreign Telecom Operators have rendered Business Support Services to the appellant. The demand under this category is incorrect. The cellular mobile telephone services including provision of access to and use of switched and non-switched networks for the transmission of voice, data and video, inbound and outbound roaming services to and from national and international destinations were introduced as 'Telecommunication Services' with effect from 01.06.2007. Therefore, the very same activity cannot be made liable to service tax under a different heading viz., Business Support Services for the same period.
3.4.2 She relied upon the decision of the Hon'ble Apex Court in the case of Union of India Vs. M/s. Indian National Ship Owners Association reported in 2011 (21) S.T.R. 3 (S.C.) to argue that when a specific new service is introduced without carving out any scope from the existing service category, such service can be leviable to service tax only prospectively. Thus, only from the date of introduction of the new service in the statute book the levy can sustain. She also relied on the decisions in the case of Commissioner Vs. M/s. IBM India Pvt. Ltd. reported in 2010 (18) S.T.R. J137 (S.C.) and Board of Control for Cricket in India Vs. Commr. of S.T., Mumbai reported in 2007 (7) S.T.R. 384 (Tri. - Mum.).
3.4.3 In any case, the demand of service tax on International Outbound Roaming services received by a Domestic Telecom Operator from a Foreign Telecom Operator falling under 'Telecommunication Services' was held to be not sustainable vide M/s. Vodafone Essar Digilink Ltd. Vs. C.C.E., Jaipur-I reported in 2017 (5) T.M.I. 882 - CESTAT New Delhi. That the demand of service tax under Business Support Services, therefore, is required to be set aside in entirety.
3.4.4 It is also argued by the Ld. Advocate that, in any case, the issue is revenue neutral as the demands are made under reverse charge mechanism and the appellant would be eligible to take credit of the amount paid. Therefore, the situation being revenue neutral, the demand raised 5 invoking the extended period also cannot sustain. She relied upon the decision of the Tribunal in M/s. Saksoft Ltd. Vs. The Commissioner of G.S.T. & Central Excise, Chennai South vide Final Order No. 40401/2019 dated 27.02.2019.
3.5 With regard to the demand raised under 'Development and Supply of Value-Added Services' for the period 2008-09, Ld. Advocate submitted that the appellant is not contesting the issue on merits, but only the penalty imposed in this regard. She submitted that the entire service tax was paid up before the issuance of the Show Cause Notice. She relied upon the decision of the Hon'ble High Court of Karnataka in the case of C.C.E. & S.T., L.T.U., Bangalore Vs. M/s. Adecco Flexione Workforce Solutions Ltd. reported in 2012 (26) S.T.R. 3 (Kar.). Even if the service tax is paid, the appellant would be eligible for credit and therefore, the issue in this case is also revenue neutral. The penalties in this regard may be set aside.
3.6 She therefore prayed that the appeal may be allowed.
4.1 Ld. AR Ms. T. Usha Devi appearing on behalf of the respondent supported the findings in the impugned order. She submitted that the first issue is with regard to the demand of service tax under Management, Maintenance or Repair Services. The Board vide its Circular dated 07.10.2005 has clarified that computer software is leviable to service tax with effect from 09.07.2004 i.e., the day the exemption granted to services in relation to maintenance and repair of computers, computer software and computer peripherals by Notification No. 20/2003-ST was rescinded vide Notification No. 07/2004-ST. The definition of Management, Maintenance or Repair Services contains an Explanation which clarifies that "goods" includes computer software. The appellants are therefore liable to pay service tax on the online maintenance and repair services of software received by them from the service providers situated outside India.
4.2 The second issue is with regard to the demand under Business Support Services. It is not disputed that the appellants are receiving services of International Outbound Roaming from Foreign Telecom Operators such as M/s. Teleglobe Canada SEC & Comfone LT. They have entered into international roaming agreement so that the subscribers of the appellant, who are outside India but within the network territory of the Foreign Telecom Operators, can use the mobile facility. This is indeed a service provided by the Foreign Telecom Operators so as to support the 6 business of the appellant and therefore, the demand under Business Support Services is legally correct. The Commissioner (Appeals) has rightly discussed the issue and held that the demand under this category is legal and proper.
4.3 The appellants are contesting only the penalty imposed in regard to the demand raised under 'Development and Supply of Value-Added Content'. The appellants have not discharged service tax under this category. Their failure to pay service tax would not have come to light but for the interference of the Department. Therefore, the penalty imposed in this regard has to be sustained.
5. Heard both sides.
6.1 The first issue is with regard to the demand under Management, Maintenance and Repair Services received by the appellant from service providers situated outside India.
6.2 On perusal of the records as well as various Circulars placed before us, we find that the definition of 'Management, Maintenance and Repair Services' was amended by adding an Explanation only with effect from 01.06.2007. The Explanation stated that "goods" includes computer software. The Department has relied upon the Circular dated 07.10.2005 to hold that the maintenance or repair of computer software is leviable to service tax with effect from 09.07.2004 itself. This is because it is argued by them that there was an exemption granted in the case of computer software under Notification No. 20/2003-ST and the said Notification was rescinded with effect from 09.07.2004.
6.3 The Hon'ble High Court of Madras in the case of M/s. Kasturi & Sons Ltd. (supra) has declared the Circular dated 07.10.2005 to be ultra vires and the same has been quashed. When the definition has been amended by including computer software in the category of "goods" with effect from 01.06.2007, Management, Maintenance or Repair Services of computer software can be leviable to service tax only with effect from 01.06.2007. This decision of the Tribunal in the case of M/s. Phoenix IT Solutions Ltd. - 2017 (52) S.T.R. 182 (supra) has discussed the very same issue and held as under :
"6. In view of the same discussions and conclusions, we hold that for the period prior to 1-6-2007, the activity of software maintenance provided by the appellant to APEPDCL will not be liable to service tax liability. However, for the period subsequent to 1-6-2007, said activity will definitely be liable 7 to service tax under the management, maintenance, repair services. The impugned order will stand modified to that extent. Considering that the issue has already been in agitation and that periodical show cause notices have been issued to the appellant, issue being one of interpretation, the imposition of penalty under Section 76 on the appellant is hereby set aside. The matter is remanded to the original authority for the limited purpose of calculating the tax liability of the appellant for the said services for the period 1-6-2007 till 31-3-2008. It is clarified that the said tax liability worked out will be payable along with interest. At this juncture ld. Counsel submits that the said tax liability has been already calculated by them and paid along with interest. This aspect will also be verified and confirmed by the de novo adjudication. Adjudicating authority will ensure that an opportunity is given to the appellant to produce evidence in support of his claim regarding payment. Ld. Counsel also stated that the impugned order also concerns an amount of Rs. 18,17,375/- demanded on business auxiliary services rendered during the period from April, 2007 to March, 2008. He submits that the said demand has already been discharged by them along with interest and that the same is already been taken note of impugned order, and has been dropped by adjudicating authority. Appeal No. ST/1821/2010 disposed of as above. Appeal ST/2352/2010 has been filed against the same impugned order by the department O-i-O No. dated 4-5- 2010, which had also been appealed against assessee in ST/1821/2010 discussed above. Department has came in appeal only on the grounds that Commissioner has erred in not imposing penalty under Section 77 ibid in respect of both the tax liabilities confirmed. That penalty under Section 78 of the Act has not also been imposed. In view of the discussions, herein above in respect of ST/2352/2010 we do not find any merit in the appeal of the department. Hence dismissed."
6.4 After appreciating the facts and following the above decisions, we are of the considered opinion that the demand of service tax under Management, Maintenance or Repair Services cannot sustain and requires to be set aside, which we hereby do.
7.1 The second issue pertains to the demand of service tax under Business Support Services for the period 2007-09. Telecommunication Services have been brought into the service tax net with effect from 01.06.2007, which includes the activity of international access and use of inbound/outbound roaming facility. When a subscriber of the appellant travels outside India, he will be able to use the mobile network of the Foreign Telecom Operator as per the agreement entered between the appellant and the Foreign Telecom Operator. For such services provided to the appellant, the appellant has to discharge service tax under reverse charge mechanism. When the said services fall under the category of 'Telecommunication Services', the very same activity cannot be subjected to levy of service tax by treating them as 'Business Support Services'. The said service does not in any way fall under the category of Business Support 8 Services, especially when the activity is covered under the definition of 'Telecommunication Services'.
7.2 The Commissioner (Appeals) in paragraph 24 has discussed that the services provided by the Foreign Telecom Operators are in the nature of "identification/authentication of customer desirous of having international roaming facility". That these are, in fact, Business Support Services and would not fall under the category of Telecommunication Services. The appellant has submitted that the non-resident service providers (Foreign Telecom Operators) providing signalling services outside India are not holding licence under the first proviso to Sub-section (1) of Section 4 of the Indian Telegraph Act, 1885. These service providers are therefore not a 'telegraph authority' as defined in Section 65(111) of the Finance Act, 1994. Hence, the service provided by the non-resident service providers would not be liable to service tax as Telecommunication Services. The legislature has sought to tax the Telecommunication Services provided only by a 'telegraph authority'. The Telecommunication Services provided by a person other than a telegraph authority is not sought to be taxed under the category of 'Telecommunication Services'. The signalling service, when provided in relation to international roaming by the Foreign Telecom Operator, cannot be taxed under another heading, namely, Business Support Services.
7.3 The Department has taken the view that the Foreign Telecom Operators have provided Business Support Services in the nature of identification/authentication of the customers. Needless to say, the Foreign Telecom Operators/visiting network provide services to the inbound roamer treating him as a subscriber on a temporary basis only. The definition of 'Telecommunication Services' includes both inbound and outbound roaming service to and from national and international destinations.
7.4 In any case, it has to be noted that the appellant is paying the appropriate service tax on the amount billed to the customers including their International Outbound Roaming charges. Thus, the fact remains that the service tax is already paid on the said activities. There is no justification to demand service tax under Business Support Services on the very same amounts. We are therefore of the view that the demand raised cannot sustain and requires to be set aside, which we hereby do.
98. With regard to the third issue, the Ld. Advocate for the appellant has submitted at the time of hearing as well as in the written synopsis that the appellant is not contesting the issue on merits and is confining the contest only to the penalties imposed. The appellants have paid service tax along with interest much before the issuance of the Show Cause Notice. The Hon'ble High Court of Karnataka in the case of M/s. Adecco Flexione Workforce Solutions Ltd. (supra) has held that when the service tax along with interest is paid before the issuance of Show Cause Notice, the penalties cannot sustain. The Tribunal in the case of M/s. Saksoft Ltd. (supra) had occasion to consider a similar situation wherein it was held that when the demand along with interest has been paid prior to issuance of Show Cause Notice, the penalties cannot sustain.
9. From the foregoing, we are of the considered opinion that :
(a) The demands in respect of 'Management, Maintenance or Repair Services' and 'Business Support Services' require to be set aside, which we hereby do.
(b) The demand in respect of 'Development and Supply of Value-Added Services' is upheld. However, the penalties imposed in this regard are set aside.
10. The appeal is partly allowed in above terms.
(Order pronounced in the open court on 29.04.2019) (SULEKHA BEEVI C.S.) MEMBER (JUDICIAL) (MADHU MOHAN DAMODHAR) MEMBER (TECHNICAL) Sdd