Custom, Excise & Service Tax Tribunal
Cce, Kanpur vs M/S Agra Computers on 8 May, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing : 8.5.2013
Service Tax Appeal No. 555 of 2008 with Cross Objection No. 25 of 2009
[Arising out of Order-in-Appeal No. 206/ST/APPL/KNP/2008 dated 22.5.2008 passed by the Commissioner (Appeals), Customs & Central Excise, Kanpur]
For Approval & Signature :
Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
CCE, Kanpur Appellant
Vs.
M/s Agra Computers Respondent
Appearance:
Shri M.S. Negi, D.R. - for the appellant
Shri Udit Jain, Advocate - for the respondent
Coram : Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Member (Technical)
F. Order No. 56460/2013 dated 8.5.2013
Per Justice G. Raghuram :
Heard the ld. DR Shri Negi for the appellant/Revenue and ld. Counsel Shri Udit Jain for the respondent/assessee. Revenue has preferred this appeal against the order of the Commissioner (Appeals), Kanpur dated 22.5.2008 setting aside the adjudication order dated 8.1.2008 passed by the Assistant Commissioner, Agra.
2. A Show Cause Notice dated 18.12.2006 was issued alleging that the assessee was providing Business Auxiliary Service (BAS) a taxable service defined under Section 65(19) of Finance Act, 1994 (the Act); that the several agreements between the assessee and Dakshinanchal Vidyut Nigam Ltd. (DVVNL) revealed that it was providing BAS to DVVNL; that for the period in issue - 10.9.2004 to 31.3.2006, the assessee failed to obtain registration as a service tax provider; to remit tax for the taxable services provided; and the assessee is consequently liable to remit service tax, interest and penalties as specified in the Notice. Assessee submitted its response to the Show Cause Notice denying liability and claiming that it does not provide BAS; and that services provided by the assessee either constituted information technology service or support service for business or commerce.
3. After following the due process and on analysis of the several agreements between the assessee and DVVNL, the adjudicating authority concluded that the assessee was providing the taxable BAS and confirmed liability of service tax of Rs.4,36,216/-; interest under Section 76; penalty under Section 76; penalty in an amount equal to the service tax demand under Section 78 of the Act; and penalty as stipulated under Section 77 of the Act.
4. Aggrieved, the assessee preferred an appeal which was allowed by the Commissioner (Appeals) by the order dated 26.2.2008. The appellate authority on independent analysis of the agreements which are the basis for the services provided by the assessee, concluded that services provided are comprehended within support service of business or commerce and not BAS. The appellate Commissioner rejected the contention of the assessee that the services provided by it are covered under information technology service, which is an excluded component of BAS. In the result, the appellate Commissioner set aside the adjudication order.
5. Contending that the assessees operations fall clearly within BAS and neither under support service for business or commerce nor under information technology service, Revenue has preferred this appeal.
6. A true and fair assessment of the essential nature of services provided by the assessee to DVVNL and evaluation of the substantive character of such services, is fundamental to determination whether the services fall within one or the other enumerated categories of taxable service under the provisions of the Act.
7. The assessee entered into several agreements with DVVNL. One such agreement is dated 6.12.2005 and this argument is taken as illustrative of the terms and conditions of the generality of the services provided by the assessee and on which the core dispute in this appeal is predicated. The agreement dated 6.12.2005 reveals that DVVNL intends to operate Spot Billing Centres at specified locations. The value of the agreement is specified to be Rs.3,88,924.50. The reciprocal obligations of the assessee and DVVNL are set out as terms and conditions of the agreement. The preamble to the agreement states that the consideration specified is for operating specified Spot Billing Centres and their maintenance. The responsibilities of the assessee are set out in clause (1) which indicates that for smooth running of the Spot Billing Centres the operations to be carried out by the assessee would include the maintenance and timely updating of software, Master file creation of existing consumers to be billed at the centre, installation of computer systems complete in all respects, computers and printers with UPS systems for fast processing; capacity and other incidental hardware for effectuating the functioning of the centres; and that the assessee should provide appropriate number of counters for processing bills and receiving payments through cheques and for issuing bills cum receipts to consumers. It is also provided that if the consumer fails to deposit payment through a cheque, a bill should be generated at the Spot Billing Centre and the consumer would deposit the payment at a DVVNL counter. The assessee is obligated to deposit the collected cheques duly furnishing details of the collection on the day after (their receipts) and should maintain particulars of each and every consumer for payments, in the computer memory for a period of one year including information regarding consumption, payment, etc. Clause (2) of the agreement details the time schedule for execution of obligations under the agreement and specifies that the assessee should operate the counters for six days a week for processing electricity bills; and for software maintenance, updating of input data and other management processes relating to the computer; the assessee should operate during the first to the third of each month and during these days normal billing operations would not occur. Clause (3) of the agreement specifies the number of centres and the category of consumers to be serviced at those centres. The total number of consumers to be serviced under this agreement is 51,650. Clauses (4) and (5) deal respectively with inputs to be provided by DVVNL, and outputs obligated on the assessee. The responsibilities of DVVNL are set out in clause (6) and that of the assessee in clause (7). Clause (7) enjoins that apart from the design and development of software relevant to the operation of running Spot Billing Centres, the assessee should arrange necessary manpower for operating the counter six days of the week during specified timings; and would be wholly responsible for the security of DVVNL money in the form of cheques/drafts or any other documents, material, records etc. Clause (8) deals with preparation of bill procedures and enjoins that the consumer would come to Spot Billing Centres along with latest meter reading on the prescribed input printed slips, on the stipulated day and thereafter the assessee would generate the bill cum receipt and payments should be made by cheques only. Wherever a consumer fails to deposit payment through cheque the Spot Billing Centre should generate the bill and the consumer is required to make the payments in cash at DVVNL counters. Clause (9) specifies that corrections in electricity bills would be done only by DVVNL. Clauses (10) to (21) set out other housekeeping provisions and set out terms pertaining to prohibition subletting; the period of the contract; terms of payments to the assesee; and other conditions of the agreement. The rate schedule appended to the agreement classifies the services to be provided by the assessee into four generic categories :
(a) Software development and system design. For this component of the service, no consideration is provided;
(b) Master file creation as per record (indicated to be a one time operation). For this service also no payment is stipulated;
(c) Processing of electricity bills @ Rs.2.31 for the 51,650 consumers, amounting to Rs.3,57,934.50; and
(d) Software maintenance, upgrading of input data, updating of master file, producing ledger, punching and processing of monthly / weekly reports and other reports on monthly basis. The amount payable for the 4th component of service is Rs.30,990/- for the 51,650 consumers. From the break up of the amounts allocated to processing of electricity bills on the one hand and software maintenance and allied operations on the other, it is clear that 91% of the total consideration is allocated for services relating to processing of electricity bills, while a mere 9% of the total value of the agreement is provided for software maintenance and allied operations; while no amount is earmarked for software development/systems design or master file design and maintenance services.
8. As noticed earlier in this judgement, the adjudicating authority proceeded on the assumption that the services rendered by the assessee are BAS, while the appellate Commissioner concluded that the services are support services of business or commerce and rejected the alternative contention of the assessee that the services amounted to information technology service, and excluded component of BAS. To determine whether the services provided by the assessee fall within one or the other of the three categories of service, it is necessary to set out the definition of these three services.
9. Business Auxiliary Service is defined in Section 65(19) of the Act:
* Business Auxiliary Service means any service in relation to:
(i) promotion or marketing or sale of goods produced or provided by or 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 purpose of this sub-clause, input means all goods or services intended for use by the client;
(v) production or processing of goods for or 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 relation 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 Explanation For the removal of doubts, it is hereby declared that for the purposes of this clause-
(a) Commission agent means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf another person-
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods of services;
(b) information technology service means any service in relation to designing, or developing of computer software or system networking, or any other services primarily in relation to operation of computer systems. BAS is specified to be a taxable service qua Section 65(105)(zzb) of the Act by enacting that any service provided or to be provided to a client by a commercial concern in relation to business auxiliary service, is a taxable service.
10. Section 65(104c) defines support services of business or commerce to mean services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational and administrative assistance in any manner, formulation of customer service and pricing policies, infrastructural support services and other transaction processing. The expression infrastructural support services which is an included component of support services of business or commerce is also defined in Section 65(104c) as including specified categories of service. Further analysis of the definition of Infrastructural Support Services is not necessary for the purposes of this appeal.
11. Section 65(A) was incorporated into the Act by the Finance Act, 2002 with effect from 14,.5.2003, to provide guidance for determination of classification of taxable services. Clause (1) of this provision provides that classification of taxable services shall be determined according to the terms of the sub-clauses of Section 65(105). Clause (2) provides that if for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of Section 65(105), classification shall be effected according to the norms set out in sub-clauses (a) to (c) of Section 65A. Sub-clause (a) provides that the sub-clause of Section 65(105) which provides the most specific description shall be preferred to sub-clauses providing a more general description. Sub-clause (b) states that 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 consisting of a service which gives them their essential character, insofar as this criterion is applicable. Sub-clause (c) is in the nature a residual guidance for classification and is to be resorted to when a service cannot be classified in the manner specified in clauses (a) or (b), and provides that it should be classified under that sub-clause of Section 65(105) which occurs first among the.sub clauses which equally merit consideration.
12. In our considered view, the bundled services provided by the assessee require to be analysed for identifying the appropriate classification, in accordance with the guidance provided by provisions of Section 65A (2)(b). The assessee has offered a bouquet comprising different services which include information technology services and Business Auxiliary Services as well. Which of this complex of services provides the essential character to the asessees transaction is the issue. The process of identifying the essential personality of the bundled services provided by the assessee appear to be problematic at the first blush but on deeper analysis of the transaction considered as a whole and on an inter active analysis of the several terms and conditions of the agreement, duly considering the raft of obligations to be executed by the assessee under the terms and conditions of the agreement; the percentage of allocation of the total consideration to the activity of processing of bills, the activity of software development, master file creation and software maintenance and the general tenor of the contractual obligations of the assessee and considered in the light of core expectations from the agreement, we are of the considered view that the assessee was required to perform business auxiliary services and not support of business or commerce service (which came later) or information technology service. (an excluded component of BAS).
13. Business Auxiliary Service defined in Section 65(19) specifically includes services as commission agent and commission agent is defined to mean any person who acts on behalf of another person and causes (to the extent relevant and material) sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of other person deals with services or documents of title to such goods or services or collects payment for such services or undertakes any activities relating to such services. Information technology service is excluded from the definition of BAS by an exclusionary clause. Information Technology Service is defined to mean any service in relation to designing or developing of computer software or system net working or any other service primarily in relation to operation of computer system.
14. from the definition of BAS qua Section 65(19) of the Act, it is clear that to fall within (the excluded) information technology service, the service should primarily be a service in relation to designing or developing software or system net working or any other services in relation to operation of computer system. If however, the designing or developing of computer software or systems net working or services in relation to operation of a computer system is a mere adjunct of another or other substantial raft of services to be provided, the service would not amount to information technology service within the meaning of the expression and the context in which this exclusionary clause is designed in the frame work of the definition of BAS, under Section 65(109)
15. In CCE, Vs. Deloitee Tax Services India Pvt. Ltd 2008 (11) STR (266) (Tri.-Bang.) - this Tribunal had occasion to consider whether the activities of the assessee (Deloitee Tax Services India Pvt. Ltd.) fall within BAS or Information Technology Service. Revenue preferred an appeal to this Tribunal contending that the service was Information Technology Service and not Business Auxiliary Service. Rejecting Revenues appeal, this Tribunal concluded that on an analysis of the services provided by the assessee (Deloitee), it is clear that the services do not relate to information technology service as they are not in relation to designing, developing or maintaining of computer parts or computerised data processing. The activities of the assessee relate back office services, to lead tax services, international assignment services and other business activities and not related to development of software. The generic nature of the assessees operations was held to fall within BAS and not Information Technology Service.
16. The decision of this Tribunal in Deloitee Tax Services (supra) was followed in the subsequent decision in Phoenix IT solutions Ltd. Vs. CCE 2011 (22) STR 400 (Tri.-Bang.). The issue in Phoenix IT Solutions Ltd was whether the several services provided by the assessee (Phoenix) to electricity companies and electricity department including the APEPDCL constituted BAS. Paragraph 4 of this judgement classified the several services provided by Phoenix IT Solutions Ltd. as electricity call centre; customer service centre and computerised collection centre; billing and accounting agency; spot billing and HT billing; energy audit; Consumer indexing etc. This Tribunal analysed the several activities and held that the assessee was basically collecting amounts due from customers and accounting for the same and that the service is essentially of collection of amounts and computerising the same by maintaining a proper data base. This Tribunal held that BAS covers billing, issue or collection and recovery of cheques, payment and maintenance of accounts and remittances on behalf of the client and that the assessee had performed these functions which are BAS. In paragraph 9 of the judgement this Tribunal referred to the earlier judgement in Deloitte Tax Services India Pvt. Ltd. to observe that for classification purposes, one must look to the essential character of the service and in this case, the development of software only facilitates consumer indexing and collection and accounting of the payments received
17. Ld. Counsel for the respondent/assessee would place substantial reliance on the judgement of this Tribunal in Gandhi & Gandhi Chartered Accountants Vs. CCE Hyderabad 2010 (17) STR 25 (Tri.-Bang.). Earlier to Gandhi & Gandhi Charered Accountants, this Tribunal in Bellary Computers Vs. CCE 2007 (8) STR 470 (Tri.-Bang.) clearly rejected the contention that services rendered by the assessee to M/s Gulbarga Electricity Supply Co. Ltd. do not amount to BAS. This Tribunal held in Bellary Computers that the assessee was not actually promoting the business of electricity supply company (GESCOM) and the only services rendered were providing software and hardware to facilitate implementation of revenue management to the electricity supply company and would clearly fall within BAS. However, the Tribunal considered that a component of the bundled service relating to supply of computer printers and other software items for which the assessee received hiring charges and other aspects like data processing and generation of MIS reports constitute information technology service. On the basis of this observation the matter was remanded for recomputation.
18. In Gandhi & Gandhi Chartered Accountants, despite referring to the earlier decision in Bellary Computers (Paras 5 (2) and para 13), this Tribunal concluded (without any analysis) that the activity of the assessee/appellant company, mainly spot billing and data processing for the APCPDCL, constituted Business Support Service, which became a taxable service later. We find on a careful analysis of Gandhi & Gandhi Chartered Accountants, that para 13 where the conclusion of this Tribunal is set out does not contain any process of reasoning preceding the conclusion that the activities of the assess fall outside the ambit of BAS. This Tribunal was satisfied to record that the appellants have clearly shown that during the relevant period, the services would come within the category of information technology service, which is specifically excluded from the scope of BAS by way of an explanation in Section 65(19).
19. It is axiomatic that an administrative, quasi judicial or a judicial order ought to record reasons. Reasons are distinct from conclusions as pointed out by the Supreme Court in Union of India Vs. M.L. Capoor AIR 1974 SC 87. The Supreme Court pointed out that reasons are the links between the material on which certain conclusions are based and the actual conclusions. A conclusion recorded ipse dixit would not amount to reasons recorded. It is an equally settled principle that only that aspect of a previous judgement operates a precedent for a subsequent case, which is the ratio decidendi, i.e the reasons adduced for the judgement. Since in our respectful view in Gandhi & Gandhi Chartered Accountants records no ratio, we are unable to consider the said judgement as a precedent that provides binding effect or guidance in this appeal.
20. On the analysis above, we conclude and for the reasons recorded above that the ld. Appellate Commissioner erred in concluding that the transactions of the assessee constituted support services for business or commerce and not business auxiliary services, as held by the adjudicating authority. This conclusion of the appellate Commissioner is misconceived and is predicated on an erroneous analysis of provisions of Section 65(19) of the Act, applied to the facts and the material on record. For this reason the order of the lower appellate authority must perish and is accordingly quashed. As a consequence, the adjudicating authoritys order dated 8.1.2008 is restored. The appeal is disposed of as above but in the circumstances, without costs.
21. Cross-objections are also disposed of in terms of the appeal.
(Justice G. Raghuram) President (Sahab Singh) Member (Technical) RM 1