2013 (5) TMI 670 - AT - Service Tax

Import of software - stay - duty of customs paid at the time of import - they paid vat at time of sale - extended period of limitation - held that - Hon ble Supreme Court s decision in Idea Mobile Communication Ltd. case (2011 (8) TMI 3 - SUPREME COURT) is to the effect that the mere payment of VAT on sale value would not per se preclude the Revenue from levy of service tax on the taxable service involved in the transaction. Prima facie, therefore, the appellant is liable to pay service tax on the service element of the transaction involving the software in India. However, as regards the demand for the extended period, they seem to have a valid point, which is that the findings recorded by the Commissioner in the context of dropping Section 78 penalty are in favour of the appellant also in the context of their challenge to the demand of service tax for the extended period. If the appellant did not have guilty mind for the purpose of Section 78, they did not have it for the purpose of the proviso to Section 73(1) of the Act as well, which is our prima facie view. Pre deposit ordered towards service tax demand pertain to normal period - stay granted towards penalty and balance amount of service tax liability and thereon pertaining to extended period of limitation.

Summary

Issues involved:
1. Waiver and stay in respect of Service Tax demand.
2. Liability to pay service tax on the sale value of imported software.
3. Validity of invoking extended period for recovery of service tax.
4. Applicability of penalty under Section 78 of the Finance Act, 1994.
5. Ownership rights over the imported software.
6. Preclusion of VAT payment from levy of service tax.
7. Requirement of pre-deposit for waiver and stay.

Analysis:

1. The appellant sought waiver and stay regarding a Service Tax demand of Rs. 12,04,76,672/-, including education cess, for the period from 16-5-2008 to 6-7-2009, along with interest and penalties. The Tribunal noted that a significant portion of the demand was beyond the normal limitation period, with the taxable amount within the normal period being approximately Rs. 18.55 lakhs. The demand was related to the sale value in India of imported 'Information Technology Software' sold by the appellant. The appellant argued that they should not be liable for service tax as they had already paid VAT on the sale value and customs duty upon import.

2. The appellant relied on a previous decision to support their case against the extended period for recovery of service tax. The Tribunal considered the argument that the absence of a guilty mind, as determined by the adjudicating authority, should preclude the imposition of penalties under Section 78 of the Finance Act, 1994. The appellant contended that the grounds for invoking the extended period were similar to those for imposing penalties, and the absence of guilt should also affect the extended period demand.

3. The Respondent argued that the payment of VAT on the sale value did not automatically exclude the liability for service tax. They contended that since the ownership of the imported software remained with the foreign seller, the transaction in India should not be considered an absolute sale. Therefore, the submission based on VAT payment should not be accepted prima facie.

4. After careful consideration, the Tribunal found that no proprietary rights were transferred to the appellant based on the agreement with the foreign company. They referred to a Supreme Court decision stating that VAT payment does not preclude the levy of service tax on the service element of the transaction. While the appellant seemed liable for service tax on the transaction, the Tribunal acknowledged the validity of the appellant's argument regarding the extended period demand, given the absence of a guilty mind for penalty purposes.

5. The Tribunal directed the appellant to pre-deposit Rs. 18.55 lakhs within six weeks, with further reporting requirements. Upon compliance, waiver and stay were granted for other penalties, along with the remaining service tax and interest amount.