2020 (10) TMI 378 - AT - Service Tax

Reverse charge mechanism - information technology software service - Recovery of Service Tax - period of dispute from 26th July 2006 to 31st August 2009 - It is contended by Learned Chartered Accountant that self-assessment to tax, on incorporation of information technology software service in section 65(105)(zzzza) of Finance Act, 1994, is ample evidence of their diligence in discharge of tax liability to exclude the possibility of having contemplated evasion of tax - HELD THAT - In terms of the activity that is sought to be taxed by these two entries, the connection with electronic data processing is unmistakable. Considering the mechanism incorporated in the two definitions to render the activity functional, the minor differences between them should have led to a similar speculative reasoning on the part of the assessee and the deliberate discard of applicability after initial discharge of tax liability should have been justified in the proceedings instead of relying upon decisions of the Tribunal rendered subsequent to the period of dispute. The discharge of tax liability after incorporation of the new levy occurred during the investigations and, therefore, does not obtain for themselves the halo of diligence. It is seen that appellant has been discharging tax liability since 16th May 2006 and, with payment of taxes amounting to ₹ 16,85,335 at some stage before ceasing to do so in July 2007, the unpaid dues is limited to ₹28,56,559 - while upholding the impugned order as being consistent with the law, the penalty under section 78 of Finance Act, 1994 is capped at this amount. Appeal dismissed.

Summary

Issues:
Recovery under sections 73, 66A, 75, 78, and 77 of Finance Act, 1994; Tax liability classification under sections 65(105)(zh) and 65(105)(zzzze); Applicability of tax on services procured from outside India; Intent to evade tax; Revenue neutrality; Liability during extended period; Penalties under section 78.

Issue 1: Recovery under Sections 73, 66A, 75, 78, and 77 of Finance Act, 1994:
The appeal challenges the recovery of &8377;56,58,312 under section 73 of Finance Act, 1994, along with interest under section 75 and penalties under sections 78 and 77. The liability was imposed based on the legal fiction in section 66A, deeming the recipient as the provider for tax collection on services procured from outside India. The total liability was partly adjusted from voluntary payments, leaving the disputed amount at &8377;28,56,559.

Issue 2: Tax Liability Classification under Sections 65(105)(zh) and 65(105)(zzzze):
The disagreement revolves around the classification of the impugned activity under section 65(105)(zh) instead of section 65(105)(zzzze) of the Finance Act, 1994. The appellant contends that the activity involves licensing software for internal operations, falling under 'information technology software service' and not 'online information database access and retrieval' as claimed by the tax authorities.

Issue 3: Applicability of Tax on Services Procured from Outside India:
The appellant argues that the service provided by an overseas entity should be exempt from tax under the classification decided upon in the impugned order. They assert that the revenue neutrality, as upheld in previous cases, supports their position and that the show cause notice for recovery is time-barred.

Issue 4: Intent to Evade Tax:
The appellant claims that their self-assessment and payment of taxes post-incorporation of 'information technology software service' demonstrate diligence in tax compliance, negating any intent to evade tax. However, the tax authorities argue that the liability for the disputed period remains, and the plea of revenue neutrality does not absolve the extended period liability.

Issue 5: Penalties under Section 78:
The impugned order imposed a penalty of &8377;56,58,312 under section 78 of the Finance Act, 1994. However, considering the appellant's tax payments and the unpaid dues, the penalty is capped at &8377;28,56,559. The Tribunal upheld the order but modified the penalty amount accordingly.

This detailed analysis of the judgment covers the issues involved comprehensively, providing insights into the legal arguments and decisions made by the Tribunal.