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2018 (8) TMI 1226 - AT - Service TaxMaintenance or repair services - Reverse Charge Mechanism - appellant has paid an amount to their holding company for maintenance of SAP computer software system - period from 01.01.2005 to 18.04.2006 - Held that - This law is now settled by the Apex Court in the case of Indian National Ship Owners Association 2009 (12) TMI 850 - SUPREME COURT OF INDIA by holding that before enactment of Sec.66A, there was no authority vested with the Government to levy service tax on the amounts paid for services received from outside India - for the period from 01.01.2005 to 18.04.2006, service tax liability would not arise on appellant under reverse charge mechanism. Post 18.04.2006 - for the period in question, i.e., 19.04.2006 to 31.05.2007, the demand has been raised under maintenance or repair services, the reasoning given by adjudicating authority is that software maintenance is also a maintenance of goods - Held that - The explanation which was added to bring into tax net, the computer software as goods was held to be effective from 01.06.2007 only - In the case in hand, it is submitted and not disputed by the revenue that from 01.06.2007 appellant has started discharging appropriate Service Tax liability on the payments made by them under reverse charge mechanism - period post 19.04.2006 to 31.05.2007; the demands confirmed by the adjudicating authority are unsustainable and liable to be set aside. Appeal allowed - decided in favor of appellant.
Issues:
1. Tax liability under reverse charge mechanism for payments made by the appellant to their holding company for maintenance of SAP computer software system. 2. Applicability of service tax rules pre and post 18.04.2006. 3. Classification of software as goods for the purpose of service tax. 4. Interpretation of TRU Circular No.334/1/2007-TRU regarding maintenance or repair of computer software. 5. Effective date of the explanation regarding computer software as goods for tax purposes. Analysis: 1. The appeal challenged the Order-in-Original imposing service tax liability on payments made by the appellant to their holding company for software maintenance. The dispute revolved around the period from 01.01.2005 to 31.05.2007, with the revenue authorities asserting tax liability under reverse charge mechanism for maintenance or repair services. 2. The appellant argued that prior to 18.04.2006, the reverse charge mechanism could not be applied due to the absence of Sec.66A of the Finance Act, 1994. The Tribunal concurred, citing settled law from the Indian National Ship Owners Association case, which established that service tax liability did not arise before 18.04.2006 under reverse charge mechanism. 3. Post 18.04.2006, the revenue contended that the service tax liability was valid, supported by the classification of computer software as goods by the Apex Court. The Tribunal acknowledged the software as goods but emphasized that the amendment including software as goods for tax purposes was effective from 01.06.2007, rendering the demands for the period 19.04.2006 to 31.05.2007 unsustainable. 4. The TRU Circular clarified that maintenance or repair of computer software falls under service tax, but the Tribunal interpreted this clarification alongside the Larsen and Tubro Infratech Ltd case. The Tribunal highlighted that the explanation regarding computer software as goods was only effective from 01.06.2007, aligning with the appellant's compliance post that date. 5. Considering the submissions and legal precedents, the Tribunal held that the demands for the period post 19.04.2006 to 31.05.2007 were unsustainable. The impugned order imposing service tax liability was set aside, and the appeal was allowed, emphasizing the effective date of the explanation regarding computer software as goods for tax purposes.
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