2007 (5) TMI 110 - AT - Service Tax

Management consultant service - Revenue contended that appellant is providing MCS and accordingly demand were made along with penalty - Held that revenue contention was not sustainable and set aside demand and penalty

Summary

Issues:
1. Whether services provided in respect of ERP software system were chargeable to service tax.
2. Whether the appellant was liable to pay service tax under the category of management consultant.
3. Whether the appellant acted as a pass-through agency for the affiliates.
4. Whether the appellant provided SAP maintenance services.
5. Whether the amount recovered by the appellant from the affiliates towards maintenance service fees was liable to service tax.
6. Whether the appellant was eligible for exemption under Notification No. 4/1999-ST.
7. Whether the demand of service tax on the appellant for providing management consultancy service was sustainable.

Analysis:

1. The appellant provided services related to ERP software system to clients. The Revenue alleged that these services were chargeable to service tax. The Commissioner confirmed the demand, imposing penalties and interest. The appellant contested the order, claiming exemption under Notification No. 16/2004-ST.

2. The appellant argued that they acted as a pass-through agency for the affiliates, procuring SAP licenses and maintenance services. They contended that they were not liable to pay service tax under the management consultant category, as they did not provide consultancy, advice, or technical assistance.

3. The appellant maintained that they were merely a coordinating agency between SAP India and the affiliates, without undertaking activities specified in the agreement. They highlighted their lack of access to the SAP software source code, indicating incapability to provide maintenance services.

4. The appellant emphasized that SAP India or its parent company had the exclusive right to modify or upgrade the software, rendering them unable to provide maintenance services. They argued that the services were actually provided by SAP India to the affiliates, not by the appellant.

5. The Commissioner relied on section 67 to assert that the amount charged by the appellant from affiliates was subject to service tax, rejecting deductions for license fees paid to SAP India. The appellant challenged this, stating that they did not use the maintenance services themselves but acted as an intermediary.

6. The appellant sought exemption under Notification No. 4/1999-ST, which covered services provided by consulting engineers in relation to computer software. They contended that even if considered a management consultant, they were eligible for the exemption during the disputed period.

7. The Tribunal examined the agreements and transactions between the appellant, SAP India, and affiliates. It concluded that the appellant acted as an agent for SAP India, facilitating the procurement of software and maintenance for the affiliates. As a result, the demand for service tax as a management consultant was deemed unsustainable, leading to the appeal's allowance.