2018 (6) TMI 1013 - AT - Service Tax

Business Auxiliary Services - services outsourced by the appellant to HSCL for implementation of Wide Area Network (WAN) for ETTSA - Management, Maintenance and Repair Services - MMR for maintenance of software - non-payment of Service Tax - Held that - The activity out sourced to HSCL was in the nature of Information Technology Service. The definition of BAS has excluded Information Technology Services, through the above Explanation. Consequently, it is concluded that even if the appellant has procured the service of establishing WAN through the outsourced service provider HSCL, the activity will not be covered within the definition of BAS - also, in the present case the service rendered by the appellant has been rendered to a Government Department which are not engaged in business but in rendering public services. Hence the procurement of service for ETTSA cannot be brought within the levy of service tax under BAS - the levy of service tax on the activity of setting up of WAN, which has been outsourced to HSCL is not justifiable and hence, the demand is set aside. Levy of Service Tax - Management, Maintenance and Repair Services - activities carried out by the appellant for ETTSA - Held that - The activities which the appellant was required to carry out to for ETTSA included supply of hardware, software, UPS, LAN equipment and also paying the structural cabling and setting up of the WAN network - The maintenance, if at all carried out by the appellant, was done as part of the operation of the computer systems. Hence, such activities will not fall within the Management Maintenance or Repair Service. It appears to us that the activities outlined in the contract would more appropriately be covered within the definition of Business Support Services which were included with effect from 1/05/2011, under Section 65/105(104(c) - demand set aside. MMR for maintenance of software - Held that - For the period under dispute, it cannot be presumed that the maintenance or software service is covered under the category of MMR. Consequently the demand of service tax on maintenance of software, under the category of MMR is not justified and hence set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Levy of Service Tax under the category of Business Auxiliary Services (BAS) for outsourced WAN implementation.
2. Demand of Service Tax under the category of Management, Maintenance, and Repair Services (MMR) for activities carried out for ETTSA.
3. Demand of Service Tax under MMR for maintenance of software.

Issue-wise Detailed Analysis:

1. Levy of Service Tax under Business Auxiliary Services (BAS):
The Revenue scrutinized the contract between the appellants and ETTSA and concluded that the activities, particularly the procurement of services from HSCL for WAN setup, fell under BAS as defined in Section 65(19)(iv). The appellant argued that they were not procuring goods or services for ETTSA but fulfilling their contractual obligations. The Tribunal examined the nature of the activities and concluded that the WAN setup involved system networking, which falls under Information Technology Services excluded from BAS. Furthermore, the services were rendered to a government department not engaged in business, supporting the appellant's claim. Consequently, the demand for service tax under BAS was set aside.

2. Demand of Service Tax under Management, Maintenance, and Repair Services (MMR):
The Revenue demanded service tax under MMR for activities other than WAN, including supply and setup of hardware and software for ETTSA. The Tribunal noted that these activities were more aligned with operating the computer systems rather than merely maintaining or managing properties. The Tribunal opined that these activities would fall under Business Support Services, which were only taxable from 1/05/2011. Hence, the demand for service tax under MMR for these activities was set aside.

3. Demand of Service Tax under MMR for Maintenance of Software:
The Revenue included maintenance of software under MMR for the period before 1/06/2007, interpreting an Explanation added in 2008 retrospectively. The appellant argued against this interpretation, citing the Supreme Court decision in Martin Lottery, which held that such explanations should not have retrospective effect if they expand the scope of tax liability. The Tribunal agreed, stating that the Explanation could not be applied retrospectively. Consequently, the demand for service tax on software maintenance under MMR was set aside.

Additional Demand:
A minor demand of ?1,85,601 arose from calculation errors. Since the Tribunal set aside the entire demand in both Show Cause Notices, this demand became infructuous.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, concluding that the demands for service tax under BAS and MMR were not justified. The judgment was pronounced in open court on 18/06/2018.