2011 (2) TMI 76 - HC - Service Tax

Maintenance of Software Applicability before 1.6.2007 Circular no. 81/2/2005-ST, Dated October 7, 2005 - Held that It is not the case of revenue that when the amendment was brought in the Finance Act, it was given retrospective effect and even the altered definition of the term, goods in the amendment of 2007 in the Finance Act, 1994 under section 65(105)(zzg) also was not given retrospective effect and hence, it cannot be said that the impugned circular attempts to give effect to the provisions or explains the changes proposed in the Finance Act,2005. There was no occasion to consider the implications of the Finance Act 2003 to 2006 in respect of the terms information technology and maintenance of software and the decision rendered in Tata Consultancy Service v. State of Andhra Pradesh 2004 -TMI - 4143 - Supreme Court in the context of the said Act under Entry 54, List-II of VII Schedule to the Constitution cannot be cited for a clarification in respect of the Finance Act, 1994 which is a Parliamentary enactment. The impugned circular is declared to have no application to the petitioner, as the same is opposed to the provisions of the Finance Act insofar as it relates to imposing of service tax on software relating to maintenance, repairing and servicing under the Finance Act, 1994 before the period of Finance Act, 2006.

Issues Involved:
1. Validity of the Circular dated 7.10.2005 issued by the Central Board of Excise and Customs.
2. Applicability of service tax on maintenance of software under the Finance Act, 1994.
3. Interpretation of the term 'goods' in relation to software.
4. Impact of Supreme Court judgments on the interpretation of 'goods' and service tax applicability.
5. Authority of circulars issued by the Central Board of Excise and Customs vis-a-vis statutory provisions.
6. Retrospective application of amendments in the Finance Act.

Detailed Analysis:

1. Validity of the Circular dated 7.10.2005
The petitioner challenged the Circular dated 7.10.2005 issued by the Central Board of Excise and Customs, arguing it was ultra vires section 83 of the Finance Act, 1994 read with sections 37B and 65(19) of the Central Excise Act, 1944. The petitioner argued that the circular violated Articles 14, 19(1)(g), and 265 of the Constitution of India by imposing service tax on software maintenance, which was excluded from the purview of service tax by the statute.

2. Applicability of Service Tax on Maintenance of Software
The respondents contended that services provided by outsourcing agencies should be treated as business auxiliary services under section 65(19) of the Finance Act, 1994. They argued that the maintenance of computer software was included in the definition of information technology service, which was excluded from service tax only until the Finance Act, 2006. Post-amendment, maintenance services were taxable.

3. Interpretation of the Term 'Goods' in Relation to Software
The circular was based on the Supreme Court judgment in Tata Consultancy Service v. State of Andhra Pradesh, which held that canned software amounts to tangible property and is liable for sales tax. The respondents used this judgment to argue that software maintenance services should attract service tax, as software was considered 'goods'.

4. Impact of Supreme Court Judgments
The Supreme Court's decision in Tata Consultancy Service v. State of Andhra Pradesh was pivotal in the respondents' argument. However, the court noted that this judgment was in the context of the Andhra Pradesh General Sales Tax Act and did not consider the implications of the Finance Acts from 2003 to 2006 regarding information technology services and software maintenance.

5. Authority of Circulars Issued by the Central Board of Excise and Customs
The court emphasized that circulars issued under section 37B of the Central Excise Act, 1944, cannot override statutory provisions. Citing the Supreme Court's judgment in Kerala Finance Corporation v. Commissioner of Income-tax, the court held that circulars are meant for the proper administration of the Act and cannot amend or detract from the statutory provisions.

6. Retrospective Application of Amendments in the Finance Act
The court found that the Finance Act, 2007, which included computer software in the definition of 'goods' under section 65(105)(zzg), was not given retrospective effect. Therefore, the circular could not impose service tax on software maintenance for periods before this amendment. The court declared that the circular had no application to the petitioner for periods before the Finance Act, 2006.

Conclusion
The impugned circular was declared to have no application to the petitioner, as it was contrary to the provisions of the Finance Act regarding the imposition of service tax on software maintenance, repairing, and servicing before the Finance Act, 2006. The court held that circulars cannot override statutory provisions and that the amendments in the Finance Act, 2007, were not retrospective. Hence, the petition was allowed, and the circular was deemed inapplicable to the petitioner. No costs were awarded, and the connected miscellaneous petition was closed.

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