2019 (4) TMI 901 - AT - Service Tax

Classification of services - Information Technology software services or not - sale of canned software with license and condition to upgrade the said software - Held that - The service tax liability confirmed by the adjudicating authority and upheld by the first appellate authority along with interest seems to be correct for the simple reason that appellant herein had supplied the canned software to M/s Reliance Capital Ltd for commercial exploitation - there is no hesitation to uphold the tax so raised as the definition of category Information Technology Software Services as per the provisions of Sec.65(105)(zzzze) would cover the canned software sold by the appellant - the demand of service tax with interest is upheld. Penalty - Held that - During the period entire thing was on flux and the Hon ble High Court of Madras has decided the issue on 24.08.2010 on which day the canned software was considered as service falling under category of Information Technology Software Services - Appellant may have entertained a bonafide belief that tax is not payable, can be a justifiable reason, for non discharge of service tax liability - Invoking the provisions of Sec.80 of the Finance Act, 1994, the penalty imposed by the adjudicating authority is set aside. The demand of the tax with interest upheld - penalties set aside - appeal allowed in part.

Summary

Issues:
- Interpretation of 'Information Technology Software Services'
- Liability for service tax on canned software sales
- Imposition of penalties for non-payment of service tax

Interpretation of 'Information Technology Software Services':
The appeal revolved around whether the sale of canned software by the appellant, including a transaction with a private client, fell under the category of 'Information Technology Software Services' as per Sec.65(105)(zzzze) of the Finance Act, 1994. The appellant argued that the demand was unjustified, citing a previous judgment by the Hon'ble High Court of Madras. The Tribunal examined the definition of the category and concluded that the canned software sold by the appellant did indeed fall under this classification. Therefore, the service tax liability confirmed by the authorities was upheld.

Liability for service tax on canned software sales:
The Tribunal found that the appellant had supplied canned software to a client for commercial use, justifying the service tax liability. The Tribunal upheld the demand for service tax along with interest, emphasizing that the appellant's actions fell within the scope of 'Information Technology Software Services' as defined in the relevant provisions of the Finance Act, 1994.

Imposition of penalties for non-payment of service tax:
Regarding the imposition of penalties, the Tribunal considered the circumstances surrounding the case. It noted that there was confusion in the industry regarding the taxability of canned software until the High Court's decision on the matter. The Tribunal acknowledged that the appellant may have genuinely believed that no tax was payable, leading to a reasonable cause for not discharging the service tax liability. In light of this, the Tribunal invoked Sec.80 of the Finance Act, 1994, to set aside the penalties imposed by the adjudicating authority, ruling that they were unwarranted. Consequently, the Tribunal upheld the demand for tax with interest but revoked all penalties imposed on the appellant.

This judgment highlights the importance of understanding the specific categorization of services under tax laws, the justification for service tax liability based on commercial activities, and the consideration of genuine beliefs as a mitigating factor in penalty assessments.