2012 (8) TMI 597 - AT - Service Tax

Demand of service tax - applicant is an STP unit engaged in the development of customized software which they are exporting - new set of agreements between the applicant and their subsidiary Held that - Applicant is paying Service tax under the category IT services with effect from 16-5-2008 and in view of exporting the product/services, they are receiving refund in terms of Rule 5 of the CENVAT credit rules - period prior to 18-4-2006 no Service tax liability will be attracted in respect of services received by the applicant - it is a case of revenue neutrality waiver of pre-deposit allowed

Issues:
1. Whether the payments made to the subsidiary for services rendered are subject to Service tax.
2. Whether the activities for which payments were made took place in a foreign territory, exempting them from Service tax.
3. Whether the services fall under the category of information technology services.
4. Whether the demand for Service tax for the period prior to 18-4-2006 is valid.
5. Whether the applicant is eligible for a refund under Rule 5 of the Cenvat Credit Rules 2004.
6. Whether the demand for the period after commencement of the investigation is time-barred.
7. Whether the new agreement with the subsidiary affects the tax liability.

Analysis:
1. The Tribunal considered the agreement between the applicant and their subsidiary for software development services. The department claimed the payments were for "Business Auxiliary Services" and demanded Service tax. The applicant argued that since activities occurred in a foreign territory, no Service tax was applicable.

2. The applicant contended that if the services were taxable, they fell under information technology services, which became taxable after 16-5-2008. They also argued that business auxiliary services excluded information technology services until 1-7-2003.

3. The Tribunal acknowledged the applicant's payment of Service tax on IT services from 16-5-2008 and their eligibility for a refund under Rule 5 of the Cenvat Credit Rules 2004. They agreed that no Service tax liability existed before 18-4-2006.

4. The applicant claimed that a sum paid under business auxiliary services for the period 18-4-2006 to 31-3-2007 should suffice. However, the impact of a new agreement from 1-4-2007 on tax liability was uncertain.

5. The Tribunal found in favor of the applicant on various grounds, including waiver of the balance of dues and stayed recovery pending appeal disposal. They noted the revenue neutrality of the case and the applicant's compliance with Service tax regulations.

6. The Tribunal referenced previous decisions to support their findings and emphasized the applicant's STP unit status, involvement in software development, and export activities. They concluded that the applicant had a valid case for the waiver of the remaining dues.

Conclusion:
The Tribunal ruled in favor of the applicant, waiving the balance of dues and staying recovery pending appeal disposal. They acknowledged the applicant's compliance with Service tax regulations, the revenue neutrality of the case, and the absence of Service tax liability before 18-4-2006. The impact of a new agreement on tax liability remained uncertain, but the Tribunal found in favor of the applicant on various grounds, including their eligibility for a refund under Rule 5 of the Cenvat Credit Rules 2004.

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