2018 (3) TMI 1287 - AT - Service Tax

Business Support Services - appellant was engaged in providing services to ICICI Bank by way of receipt of fresh applications for sanction of loan, credit cards etc. - Department was of the view that the activity carried out by the appellant will be covered by the definition of business support services under Section 65 (105)(zzzq) of the Finance Act, 1994 which was introduced with effect from 01.05.2006 - Held that - the appellant was under bonafide belief that the activities will be covered under the category of information technology software inasmuch as, the appellant was also required to develop the software template into which the date is to be entered. Under the circumstances, the appellant was entertaining a bonafide belief that the activities will not fall under the activity of business support service. Further, the demand has been raised for the period immediately after the category of business support service was introduced into the statute books. Consequently, the Revenue is not justified in raising the demand by invoking the suppression clause under Section 73. Hence, the demand of Service Tax is to be restricted to that falling within the normal time limit. Demand for normal period upheld - Adjudicating Authority is directed to re-quantify the demand - appeal allowed in part by way of remand.

Issues:
- Classification of services provided by the appellant to ICICI Bank under the definition of business support services for the disputed period.
- Challenge to the service tax demand by the appellant based on the nature of activities carried out and the introduction of a new category for service tax liability.
- Bonafide belief of the appellant regarding the classification of activities under information technology software and the invocation of the suppression clause by the Revenue.

Analysis:
1. The appeal revolved around the classification of services provided by the appellant to ICICI Bank under the definition of business support services during the disputed period. The Department contended that the activities fell under business support services as per Section 65(105)(zzzq) of the Finance Act, 1994. The appellant argued that the activities were akin to information technology software development, which had a separate service tax liability introduced later.

2. The appellant challenged the service tax demand primarily on the grounds that the software developed for data entry was more aligned with information technology software services rather than business support services. The appellant highlighted that the service tax liability for IT software was introduced at a later date, and thus, the Revenue was not justified in charging service tax for the disputed period under business support services.

3. The Revenue, represented by the ld. D.R., reiterated the lower authorities' orders, emphasizing that the appellant's activities, as per the agreement with ICICI Bank, encompassed services falling under the category of business support services. The Revenue argued that the introduction of business support services as a separate category encompassed activities like accounting and transaction processing, which the appellant's services aligned with.

4. Upon hearing both sides and examining the records, the Tribunal analyzed the activities carried out by the appellant for ICICI Bank. The Tribunal noted that the appellant's activities involved developing software templates for data entry and processing transactions on behalf of ICICI Bank. Sample invoices indicated computer data processing services for applications, aligning with business support services for ICICI Bank's business support. Therefore, the Tribunal upheld the service tax demand on merit.

5. However, the Tribunal acknowledged the appellant's bonafide belief that the activities could be classified under information technology software services due to the software development aspect. Considering the appellant's belief and the proximity of the demand to the introduction of the business support services category, the Tribunal ruled that the Revenue's invocation of the suppression clause under Section 73 was not justified. The demand was restricted to the normal time limit, and no penalty was imposed.

6. In conclusion, the Tribunal upheld the levy of service tax under business support services but restricted it to the normal time limit. The Adjudicating Authority was directed to re-quantify the demand, and the appeal was partly allowed.

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