2014 (8) TMI 590 - AT - Service Tax

Classification of service - information technology service - Intellectual Property Rights Services - trading activity or service activity - purchase and sale of third party s standardised software products - sale of in-house developed customised software - sale of hardware - refund of services tax for services provided in SEZ - Held that - The fact of purchase and resale of software and payment of VAT/ST on the software also point to the fact that the transaction entailed sale of goods and not supply of services. Similarly, sale of hardware would be clearly a trading activity. Therefore, this is also clearly outside the purview of information technology software service. As regards the sale of in-house developed software, we have seen the product literature furnished by the appellant. From the product literature for the software developed in-house, it is seen that they are standard software, which are sold to a particular class of buyers, such as banks, insurance companies, mutual funds and various other financial service providers, under a trade/brand name. Therefore, they appear to be goods, which can be marketed or sold. Inasmuch as the appellant has discharged the sales tax/VAT liability on such software, there is merit in the contention of the appellant that liability to pay service tax does not arise on a sale transaction. - prima facie case is in favor of assessee - stay granted. Refund for services provided to the SEZ unit - Held that - t is clear that exemption has to be claimed in the manner prescribed and the manner has been provided vide Notification No. 9/2009-ST dated 3-4-2009. In the present case it is an admitted fact that the said procedure has not been followed. Therefore, prima facie in the absence of compliance to the procedure prescribed, the appellant cannot claim exemption from levy of service tax. - assessee directed to make pre-deposit of ₹ 1.40 crore for services provided in SEZ - stay granted partly.

Summary

Issues Involved:
1. Classification of services rendered by the appellant.
2. Sale of third-party software and hardware.
3. Sale of in-house developed software.
4. Service tax liability on services provided to SEZ units.
5. Reimbursement of Octroi charges and other receipts.
6. Compliance with procedural requirements for claiming exemptions.

Detailed Analysis:

1. Classification of Services Rendered by the Appellant:
The appellant was initially classified under "maintenance and repair services" but the adjudicating authority later classified the services under "Intellectual Property Rights Services" (IPR) for the period before 15/05/2008 and "information technology services" post 16/05/2008. The Tribunal noted that the appellant was not given notice about this reclassification, which is a violation of the principles of natural justice. The Tribunal held that without proper notice and an opportunity to rebut, the demand could not be confirmed.

2. Sale of Third-Party Software and Hardware:
The Tribunal observed that the sale of third-party software and hardware cannot be classified under IPR services. Since the IPR services excluded 'copyright' from its purview, and computer software is considered a literary work under the Copyright Act, the sale of software did not qualify as IPR services. The Tribunal also referred to the Apex Court's decision in Tata Consultancy Services Ltd., which stated that the sale of software is a sale of goods. Therefore, the sale of third-party software and hardware was considered a trading activity and not a supply of services.

3. Sale of In-House Developed Software:
The Tribunal reviewed the product literature for the in-house developed software and concluded that these were standard software sold to specific buyers under a trade/brand name. Since the appellant discharged the sales tax/VAT liability on such software, the Tribunal found merit in the appellant's contention that service tax liability did not arise on these transactions. The sale of in-house developed software was thus considered a sale of goods.

4. Service Tax Liability on Services Provided to SEZ Units:
The Tribunal acknowledged that the law prescribes a refund mechanism for services provided to SEZ units. Section 26 of the SEZ Act, 2005, provides exemptions, including from service tax, but the appellant did not follow the prescribed procedures. Consequently, the Tribunal held that the appellant could not claim the exemption and was liable to discharge the service tax liability of Rs. 1,40,08,000/- for services provided to SEZ units.

5. Reimbursement of Octroi Charges and Other Receipts:
The appellant contended that reimbursements such as Octroi charges were not taxable. However, the Tribunal did not provide a detailed analysis on this issue in the judgment.

6. Compliance with Procedural Requirements for Claiming Exemptions:
The Tribunal emphasized the importance of following the prescribed procedures for claiming exemptions under the SEZ Act. Since the appellant did not comply with the required procedures, the Tribunal held that they could not claim the benefit of exemption from service tax.

Conclusion:
The Tribunal directed the appellant to make a pre-deposit of Rs. 1.40 crore within eight weeks and report compliance. Upon compliance, the pre-deposit of the remaining dues would be waived, and recovery stayed during the appeal's pendency. The judgment highlighted the necessity of proper classification and procedural compliance for service tax liabilities and exemptions.