2013 (12) TMI 791 - AT - Service Tax

Demand of service tax - Testing and analysis of computer software - Held that - Information technology service was brought under the service tax net with effect from 16/07/2008. Consequently, the activity of testing and analysis of IT software was also brought into the tax net by amending the definition. If IT software was already included within the scope of technical testing and analysis service, there was no need for any amendment to be specifically made in Section 65(106) - testing and analysis of IT software would be effective only from 16/05/2008 when the said activity was specifically included under technical testing and analysis service - Following decision of RELQ SOFTWARE PVT. LTD. Versus CST, BANGALORE 2008 (12) TMI 145 - CESTAT BANGLORE - testing and analysis of IT software would be leviable to service tax only with effect from 16/05/2008 and therefore, there is no infirmity in the impugned order passed by the adjudicating authority - Decided against Revenue.

Issues:
- Whether testing and analysis of IT software is subject to service tax liability prior to 16/05/2008.
- Interpretation of the definition of technical testing and analysis service.
- Applicability of amendments in Finance Act, 2008 to IT software testing services.
- Impact of previous judicial decisions on the taxation of IT software testing services.

Analysis:

1. Tax Liability for IT Software Testing before 16/05/2008:
The case involved the question of whether testing and analysis of IT software were subject to service tax liability before 16/05/2008. The appellant, M/s. Aztecsoft Ltd., Pune, had not registered for service tax or paid any tax for the period from 01/07/2003 to 31/03/2008. The Revenue issued show-cause notices demanding significant amounts of service tax. However, the Ld. Commissioner dropped the demands, stating that IT software testing was not taxable until 2008. The Revenue challenged this decision, arguing that software testing should be considered goods and therefore taxable under technical testing and analysis services.

2. Interpretation of Technical Testing and Analysis Service Definition:
The Revenue relied on the Supreme Court's decision in TCS Vs. State of Andhra Pradesh and a circular by CBEC to support the view that software should be treated as goods for tax purposes. They contested the Ld. Commissioner's reliance on the Stag Software Pvt. Ltd. case, arguing that the interpretation was incorrect. The Ld. Counsel for the respondent, however, emphasized that IT software testing became taxable only from 16/05/2008 under technical testing and analysis services.

3. Amendments in Finance Act, 2008 and Judicial Precedents:
The Tribunal analyzed the amendments in the Finance Act, 2008, which explicitly included IT software in the scope of technical testing and analysis services. The Tribunal referred to budget instructions and previous decisions like Relq Software Pvt. Ltd. to support the view that IT software testing was taxable only after the specific inclusion in 2008. The Tribunal also highlighted that the amendments were made to various taxable services to encompass IT software-related activities, reinforcing the position that IT software testing was not taxable before 16/05/2008.

4. Conclusion and Dismissal of Appeal:
After considering the arguments from both sides and the legislative changes, the Tribunal concluded that testing and analysis of IT software were liable to service tax only from 16/05/2008. Therefore, the impugned order dropping the demands was upheld, and the Revenue's appeal was dismissed for lacking merit. The decision was based on the legislative amendments and judicial precedents establishing the non-taxability of IT software testing services before the specified date.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the tax liability of IT software testing services and the significance of legislative amendments and judicial interpretations in resolving such disputes.

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