2011 (9) TMI 787 - AT - Service Tax

Applications for waiver of pre-deposit - According to the applicants, they are involved in development of software, testing of the same and undertaking modification and upgradation in the course of use of the software developed by them as advised by their clients and therefore, their activities should be treated as falling under the Information Technology Software Services under Section 65(105)(zzzze) - Held that the agreements are not for mere supply of manpower but for undertaking entire activities relating to development of software to the satisfaction of their clients including modification and upgradation of the said software based on difficulties being pointed out by the clients while using the software developed by the applicants - The personnel including the project Managers are on the payrolls of the applicant companies only - Decided in favor of the assessee

Summary

Issues:
Interpretation of services provided by the applicants under STP Scheme - Whether the activities fall under "Information Technology Software Services" or "Manpower Supply Services".

Analysis:
The case involved two applications for waiver of pre-deposit concerning the interpretation of services provided by the applicants under the STP Scheme. The applicants, 100% E.O.Us, claimed that their activities should be considered as falling under "Information Technology Software Services" under Section 65(105)(zzzze). On the other hand, the department argued that the applicants merely supplied qualified personnel for software development, categorizing their activities as "Manpower Supply Services" under Section 65(105)(k). The dispute resulted in a demand for service tax along with interest and penalties against the applicants.

Upon examining the agreements between the applicants and their clients, it was observed that the applicants undertook the complete development of software for various applications as desired by their clients. The manpower deployed by the applicants was directly supervised by their Project Managers, and the personnel were under the payrolls of the applicant companies. Billing was based on fixed cost and time and material cost, indicating that the activities were beyond mere supply of manpower. The agreements also granted clients the right to request changes in the software and delay payment until satisfactory completion. Based on these findings, the Tribunal held that the applicants had made out a prima facie case for waiver of pre-deposit, granting the waiver and staying the recovery of dues until the appeal's disposal.

Considering the significant stakes involved, the Tribunal decided to list the appeals for out-of-turn hearing, scheduling them for final hearing on a specific date. The decision highlighted the importance of a thorough examination of agreements and activities to determine the nature of services provided under the STP Scheme, emphasizing the distinction between "Information Technology Software Services" and "Manpower Supply Services" for tax purposes.