2013 (11) TMI 1453 - AT - Service Tax

Service tax on computer software - Notification No.20/2003-ST - Maintenance of computers, computer systems or computer peripherals - Held that - Notification No.20/2003-ST provided exemption for maintenance of computers, computer systems or computer peripherals. Computer software was not exempted by the said notification. So its withdrawal cannot result in levy of service tax on computer software as argued by Revenue - explanation appearing under the meaning of the term management, maintenance or repair defined by Section 65(105) (zzg) of Finance Act, 1994 specifies that goods includes computer software. The explanation operates like a charging provision from 1-6-2007 incorporated into law by Finance Act, 2007 - appellants shall not be brought to the ambit of tax for the period 9-7-2004 to 30-9-2005 when the explanation was inserted to the above section w.e.f. 1-6-2007 by Finance Act of 2007 - Following decision of VGL Softtech Ltd. Vs Commissioner of Central Excise, Jaipur 2013 (11) TMI 1462 - CESTAT NEW DELHI - Decided in favor of assessee.

Summary

Issues:
- Whether the software company is liable to pay service tax for the development and maintenance of 'e-net' banking software.
- Whether the decision in the case of Tata Consultancy Services regarding canned software being goods applies to custom-built software like 'e-net.'
- Whether the introduction of a specific provision to tax a service implies that prior to that date, the activity was not covered by any other taxable service entry.
- Whether the withdrawal of a notification exempting maintenance of computers results in the levy of service tax on computer software.
- Whether the explanation under Section 65(105)(zzg) operates retrospectively.

Analysis:
1. The issue in this case revolves around the liability of a software company to pay service tax for developing and maintaining 'e-net' banking software. The Revenue argued that the software became taxable upon the withdrawal of a specific notification, while the appellant contended that the activity falls under Information Technology Service, taxable from a later date.

2. The appellant highlighted that the decision in the Tata Consultancy Services case pertained to canned software and not custom-built software like 'e-net.' They argued that until a specific provision was introduced to tax such services, the activity was not covered under any taxable service entry.

3. The Tribunal examined the withdrawal of the notification exempting maintenance of computers and noted that computer software was not exempted. However, based on a previous decision in VGL Softtech Ltd., the Tribunal held that the explanation under Section 65(105)(zzg) did not operate retrospectively, thereby ruling in favor of the appellant.

4. Ultimately, the Tribunal allowed the appeal, setting aside the impugned order and deciding in favor of the appellant. The appellant did not seek a refund for the tax paid from a specific date, which was not addressed in the judgment.

5. The judgment clarifies the application of tax laws to software development and maintenance services, emphasizing the importance of specific provisions and interpretations in determining tax liability. The decision provides guidance on the retrospective operation of tax amendments and the scope of taxable services in the software industry.