2008 (12) TMI 145 - AT - Service Tax

Technical Inspection and Certification Services - testing and analysis of software is covered under Section 65 (105) (zzi) with effect from 16.5.2008. In the present case the period is prior to that. Further it is seen that testing and analysis of IT Software has been specifically included under Technical Testing and Analysis Services only with effect from 16.5.2008 appeal is allowed

Summary

Issues:
1. Appeal against Order-in-Original passed by Commissioner of Service Tax, Bangalore.
2. Allegation of evasion of Service Tax on Technical Inspection and Certification Services.
3. Imposition of demand, interest, and penalties.
4. Interpretation of software testing as part of Technical Inspection and Certification Services.
5. Applicability of Service Tax on software testing before and after consequential amendments to the Finance Act, 2008.

Analysis:
1. The appeal was filed against the Order-in-Original issued by the Commissioner of Service Tax, Bangalore, alleging evasion of Service Tax on Technical Inspection and Certification Services. The Revenue claimed that the appellants had evaded payment of Service Tax amounting to Rs. 1,37,49,835/- for the period between July 2003 to May 2006. The Original authority confirmed the demand along with interest and imposed penalties under various sections of the Finance Act, 1994.

2. The appellants contended that software testing should not be considered as part of Technical Inspection and Certification Services. They relied on a previous decision by the Tribunal in the case of Stag Software P. Ltd. vs. CST, where it was held that software testing, being integral to software engineering, should not fall under the category of taxable services. The appellants argued that post-amendments to the Finance Act, 2008, 'testing and analysis of IT Software' was specifically included under a different category, thereby exempting it from Service Tax.

3. After careful consideration, the Bench referred to the decision in Stag Software P. Ltd. and concluded that software testing, being a crucial aspect of software development, should not be taxed under Technical Inspection and Certification Services. The Bench distinguished this case from a previous judgment involving 'canned' software, emphasizing that software testing in this instance was not a standalone product. Additionally, it was noted that the relevant amendments to the Finance Act, 2008, specifically included 'testing and analysis of IT Software' under a separate category, effective from 16.5.2008. Since the period in question predated this amendment, the demand for Service Tax on software testing was deemed incorrect.

4. In light of the above analysis and the specific inclusion of 'testing and analysis of IT Software' under a different category post-amendments, the impugned order was set aside, and the appeal was allowed with consequential relief. The decision was based on the interpretation of software testing as distinct from Technical Inspection and Certification Services, as well as the legislative changes brought about by the Finance Act, 2008.

This comprehensive analysis of the judgment highlights the key issues addressed by the Appellate Tribunal CESTAT Bangalore, providing a detailed insight into the legal reasoning and conclusions reached in the case.