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(a) The second respondent issued a circular on 17.12.2003 to the effect that the software service would be outside the purview of service tax and it is also stipulated in section 65(19) of the Finance Act, 1994 that it does not include Information Technology Services and as per the explanation to that Section, the maintenance of computer software is included in information technology service.
(b) After the judgment was rendered by the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308], wherein it was held that canned software amounts to tangible property and when the same is sold it would be liable for sales tax, the second respondent issued the impugned circular dated 7.10.2005 to the effect that software amounts to goods and therefore, the maintenance of software will attract maintenance charges liable for service tax.

3. In the counter affidavit filed by the respondents, it is stated that the services done by outsourcing agencies are to be treated as business auxiliary service as defined under section 65(19) of the Finance Act, 1994 as substituted by the Finance (No.2) Act, 2004 and the definition information technology service includes computer software, system networking, data processing, etc., after the amendment effected in the Finance Act, 2006 and after 1.5.2006 only the services relating to designing or developing of computer software or system networking or computerised data processing or any other services primarily in relation to operation of computer systems are excluded and therefore, it does not mean that it is not taxable under maintenance or repair service. Therefore, according to the respondents, the maintenance branch of information technology was brought into the purview of service tax structure by the amendment made to section 65(19) by Explanation (b) in Finance Act, 2004.

5. Under the contract entered on 31.10.2000 with a foreign dealer for supply of software, the petitioner entered a maintenance contract paying annual maintenance charges to the foreign dealer and by virtue of the impugned circular issued by the second respondent the petitioner would be bound to pay service tax in respect of maintenance of software.

6. Admittedly, it is under the Finance Act, 2007, with effect from 1.6.2007, the term goods has been expressly made to include computer software. But earlier in the Finance Act, 2003 in which the terms, business auxiliary service and maintenance or service were introduced for the first time. There was specific exclusion of information technology service including maintenance of computer software from the purview of business auxiliary service. The term, business auxiliary service as introduced in the Finance Act, 2003 with explanation contained therein is as follows:

8. Therefore, on fact, it is clear that till the advent of the Finance Act, 2007, the information technology which included maintenance of computer software, had been outside the purview of business auxiliary service, especially under section 65 and the term, goods in the Finance Act, 2007 has included computer software under section 65(105) (zzg). However, under the impugned circular the second respondent placed reliance on the judgment of the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308] to conclude that software being goods, any service relating to maintenance, repairing and servicing of the same is also liable for service tax. The Supreme Court in that case decided about the term, goods in the light of Andhra Pradesh General Sales Tax Act and framed the question as follows: