2019 (7) TMI 1699 - AT - Service Tax

Refund of Service Tax - appellant being a Software Developer of Education Software - Development of Maths Items Clones - Psychological Services used for export of output service - denial on the ground of nexus - HELD THAT - The service namely Development of Maths Items clones is a part of the Software which is developed by the appellant. In this particular Software, it is outsourced from the service provider, since this particular Development of Maths Items is used in the development of the final package Software by the appellant, it is directly used in the output service, therefore, there is no doubt that the service of Development of Maths Items is an input service - credit allowed. Psychological Service - HELD THAT - It is very common in the Software Industry that there is a huge attrition ratio and to avoid the attrition ratio, the employees need to be given the counselling by the Psychological Professionals. This ultimately help to retain the employees and which contributed in the overall performance of output service i.e. Development of Software. Therefore, both the services are directly used for providing the output services. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Entitlement for refund in respect of services "Development of Maths Items Clones" and Psychological Services used for export of output service.

Analysis:
The main issue in this case was whether the appellant, a Software Developer of Education Software, is entitled to a refund for services related to "Development of Maths Items Clones" and Psychological Services used for exporting output services. The appellant argued that both services were directly used in the development of software, which is their output service. The appellant contended that the "Development of Maths Items" service is part of the software developed by an outside provider and directly used in the appellant's software development process. Regarding Psychological Services, it was highlighted that these services were crucial in reducing attrition rates and enhancing employee performance in the software company.

The Revenue, represented by the Superintendent, relied on a previous tribunal decision to support its position. However, upon hearing both sides and examining the records, the Member (J) found that the "Development of Maths Items Clones" service was indeed an input service directly used in the output service of developing software. Additionally, the Psychological Services were deemed essential in the software industry to address high attrition rates and improve employee performance, thus directly contributing to the output service of software development. The Member (J) distinguished the cited decision by the Revenue, stating that the facts were different and the ratio was not applicable in this case.

Consequently, based on the analysis provided, the Member (J) set aside the impugned order and allowed the appeal in favor of the appellant. The judgment emphasized that both the "Development of Maths Items Clones" and Psychological Services were directly utilized in providing the output services, justifying the appellant's entitlement to a refund for these services.