2012 (7) TMI 565 - AT - Service Tax

Whether the activities relate to field of Management or Engineering - ERP implementation Held that - ERP software has been prepared obviously taking inputs from various domain experts such as inventory control, production engineering, finance, labour management, marketing etc. However, the software is predominantly a product evolved by engineers - It cannot be said that everybody who is concerned with ERP implementation should be a Management consultant as such consultant can be from any other discipline as well - Activities clearly are in the field of engineering and not in the field of management. Whether the service falls under Management Consultant - Appellants are claiming that their activities are only in relation to ERP implementation Held that - appellants are actually implementing applications software like SAP, Oracle, people soft. They are also into upgradation of application software from existing release level to higher version. They are also specifically into running of electronic data processing centre, business of data processing, word processing etc. - Same appears to be limited only to the field of Engineering and the services would fall under the category of consulting engineers only. Whether the doctrine of estoppel can be invoked - Commissioner has, invoking the doctrine of estoppel, held that the appellants have treated themselves as rendering the services of management or business consultant - Appellants have availed the benefit of Notification No. 16/2004 ST - demand stands confirmed only on the ground that the activities of the appellants can be considered to be in the field of management to bring them under the category of management consultant / management/business consultant . This is held to be not sustainable - Commissioner has chosen to treat as if there were no exports at all and demanded service tax on the entire turnover and there is no justification for demanding service tax on the export of services - denial of credit amounting to ₹ 2.33 crores during the period October 2005 to March 2008 was on the ground of non-production of the necessary documents. This is being contested by the appellants stating that they have produced the necessary documents to department - Regarding the taxability of services which is in favour of the assessee - Order of the Commissioner is set aside and the appeal allowed

Issues Involved:

1. Classification of services provided by the appellants.
2. Eligibility of Cenvat credit availed/utilized.
3. Applicability of doctrine of estoppel.
4. Demand of service tax on export services.
5. Appropriation and adjustment of service tax paid.

Detailed Analysis:

1. Classification of Services Provided by the Appellants:

The appellants provided ERP software system-based services including implementation, support, assessment, hosting, consultancy, and upgradation of application software. The Commissioner classified these services as "management consultant/management and business consultant services" and confirmed a demand of service tax. However, the appellants contended that their services should be classified under "Consulting Engineer Services" or "Information Technology Services."

The Tribunal analyzed the nature of activities and concluded that the appellants were involved in implementing ERP software, which required technical expertise in engineering rather than management. The Tribunal noted that the ERP software is predominantly an engineering product, and the appellants' role was to implement and customize it to suit clients' needs, which involves technical assistance rather than management consultancy.

2. Eligibility of Cenvat Credit Availed/Utilized:

The Commissioner denied Cenvat credit amounting to Rs. 2.33 crores on the ground of non-production of supporting documents. The appellants argued that they had provided the necessary details in their ST-3 returns. The Tribunal held that since the service tax itself was not payable as determined by the Commissioner, the question of disallowing the credit utilized and recovering the same does not arise.

3. Applicability of Doctrine of Estoppel:

The Commissioner invoked the doctrine of estoppel, stating that the appellants had classified their services as "management or business consultant" in their ST-3 returns and export documents. The Tribunal rejected this argument, stating that in tax matters, the doctrine of estoppel cannot be applied. The Tribunal emphasized that the classification of services should be based on the actual nature of activities performed, not on the appellants' previous classification in documents.

4. Demand of Service Tax on Export Services:

The appellants claimed that more than 90% of their turnover during the relevant period was export turnover, which is not liable to service tax. The Commissioner demanded service tax on the entire turnover, citing discrepancies between figures in annual performance reports and balance sheets. The Tribunal found that the Commissioner had not given the appellants an opportunity to reconcile the differences and had unjustifiably treated the entire turnover as domestic services. However, this issue became irrelevant as the Tribunal held that the demand on the domestic turnover itself was not sustainable.

5. Appropriation and Adjustment of Service Tax Paid:

The Commissioner appropriated and adjusted a sum of Rs. 45,24,460/- paid by the appellants towards the service tax liability. The Tribunal noted that the appellants had paid service tax on domestic turnover for the period from 01.03.2006 to 31.03.2008. Since the Tribunal held that the service tax demand itself was not sustainable, the appropriation and adjustment of the amount paid by the appellants were also not justified.

Conclusion:

The Tribunal set aside the impugned order of the Commissioner, holding that the appellants' activities were in the field of engineering and not management. The Tribunal concluded that the services provided by the appellants should be classified under "Consulting Engineer Services" or "Information Technology Services," which became taxable only from 16.05.2008. Consequently, the demand for service tax, denial of Cenvat credit, and penalties imposed by the Commissioner were not sustainable. The appeal was allowed with consequential relief as per law.

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