2019 (5) TMI 234 - AT - Service Tax

Reverse charge mechanism - Management, Maintenance and Repair Services received by the appellant from service providers situated outside India - demand of service tax - HELD THAT - The definition of Management, Maintenance and Repair Services was amended by adding an Explanation only with effect from 01.06.2007. The Explanation stated that goods includes computer software. The Department has relied upon the Circular dated 07.10.2005 to hold that the maintenance or repair of computer software is leviable to service tax with effect from 09.07.2004 itself. This is because it is argued by them that there was an exemption granted in the case of computer software under Notification No. 20/2003-ST and the said Notification was rescinded with effect from 09.07.2004 - the demand of service tax under Management, Maintenance or Repair Services cannot sustain and requires to be set aside. Classification of services - Business Support Services or telecommunication services - period 2007-09 - HELD THAT - Telecommunication Services have been brought into the service tax net with effect from 01.06.2007, which includes the activity of international access and use of inbound/outbound roaming facility. When a subscriber of the appellant travels outside India, he will be able to use the mobile network of the Foreign Telecom Operator as per the agreement entered between the appellant and the Foreign Telecom Operator - When the said services fall under the category of Telecommunication Services , the very same activity cannot be subjected to levy of service tax by treating them as Business Support Services . The said service does not in any way fall under the category of Business Support Services, especially when the activity is covered under the definition of Telecommunication Services - Demand set aside. Penalties - service tax with interest paid before issuance of SCN - HELD THAT - The appellants have paid service tax along with interest much before the issuance of the Show Cause Notice. The Hon ble High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD 2011 (9) TMI 114 - KARNATAKA HIGH COURT has held that when the service tax along with interest is paid before the issuance of Show Cause Notice, the penalties cannot sustain - Penalty do not sustain, while demand of service tax sustain. Appeal allowed in part,

Summary

Issues Involved:
1. Demand of service tax under 'Management, Maintenance, or Repair Services'
2. Demand of service tax under 'Business Support Services'
3. Demand of service tax under 'Development and Supply of Value-Added Services'
4. Imposition of penalties related to the above demands

Detailed Analysis:

1. Demand of Service Tax under 'Management, Maintenance, or Repair Services':
The appellants received online maintenance and repair services of software from foreign service providers. The Department argued that these services were taxable as 'Management, Maintenance, or Repair Services' under Section 65(64) of the Finance Act, 1994, following an amendment effective from 01.06.2007, which included computer software in the definition of "goods." However, the appellants contended that the demand was not tenable for the period before this amendment. They relied on several judicial precedents, including the decision in M/s. Phoenix IT Solutions Ltd. and the ruling by the Hon’ble High Court of Madras in M/s. Kasturi & Sons Ltd., which quashed the Department's Circular dated 07.10.2005. The Tribunal concluded that the demand for service tax on software maintenance and repair services prior to 01.06.2007 was unsustainable and set it aside.

2. Demand of Service Tax under 'Business Support Services':
The appellants received International Outbound Roaming services from foreign telecom operators. The Department classified these services as 'Business Support Services' and raised a demand for service tax. The appellants argued that these services fell under 'Telecommunication Services,' introduced as taxable from 01.06.2007, and could not simultaneously be taxed under 'Business Support Services.' They cited the Supreme Court's decision in Union of India Vs. M/s. Indian National Ship Owners Association, which established that new services introduced in the statute are taxable only prospectively. The Tribunal agreed with the appellants, noting that the services provided by foreign telecom operators were already covered under 'Telecommunication Services' and could not be taxed under 'Business Support Services.' Consequently, the demand was set aside.

3. Demand of Service Tax under 'Development and Supply of Value-Added Services':
The appellants received services for developing and supplying value-added content like cartoons, music videos, and ringtones. They did not contest the service tax demand on merits but challenged the penalties imposed. The appellants had paid the service tax along with interest before the issuance of the Show Cause Notice. They relied on the Karnataka High Court's decision in C.C.E. & S.T., L.T.U., Bangalore Vs. M/s. Adecco Flexione Workforce Solutions Ltd., which held that penalties could not be sustained if the tax along with interest was paid before the issuance of the notice. The Tribunal upheld the demand but set aside the penalties.

4. Imposition of Penalties:
The Tribunal considered the appellants' argument that they had paid the service tax along with interest before the issuance of the Show Cause Notice, making the imposition of penalties unsustainable. Citing the High Court of Karnataka's decision and the Tribunal's own ruling in M/s. Saksoft Ltd., the penalties related to the 'Development and Supply of Value-Added Services' were set aside.

Conclusion:
(a) The demands in respect of 'Management, Maintenance, or Repair Services' and 'Business Support Services' were set aside.
(b) The demand in respect of 'Development and Supply of Value-Added Services' was upheld, but the penalties imposed were set aside.
(c) The appeal was partly allowed in the above terms.