9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (1) TMI 188 - AT - Service TaxLevy of service tax - Business Auxiliary Services or not - Software Activation Charges - whole case has been made by the Department on the basis of balance sheet which shows a separate income under head software activation charges - time limitation - HELD THAT - In case of feature related software, we find that the customers were intimating their needs and specific requirements to Appellant for activation of features, accordingly activation of specific function is allowed by overseas suppliers on payment of charges. Appellant collected the said charges thru their Invoices/ bills and paid the CST/Sales Tax on entire amount. After retaining profit, remaining amount is transferred by appellant to overseas vendors. In the said transaction we observed that, there is no service obligation in whole transaction. The only commercial obligation is sale of goods by appellant to customers as and when required. The appellant did not receive any commission in this matter. The appellant is not a facilitator or a service provider to customers, but is a seller to customers. Hence, a pure and simple sale/purchase transaction has been misconstrued to be a service under Section 65(19) of Finance Act 1994 by the Department in this matter - there is force in the argument of the appellant that when there is sale there will be no service. The invoices raised for activation of software indicate that the Appellant has paid VAT /sales tax and as per the provisions of Section 2 (23)(d) of the Gujarat Value Added Tax Act and Section 2 (g) (iv) of the Central Sales Tax Act 1956, the said transaction of appellant covered in definition of sales of goods for the purpose of payment of VAT/CST. Further, Article 366(12) of the Constitution of India defines the expression goods , which include all materials, commodities and articles. It is an inclusive definition. Article 366(29A)(a) deals with a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration. On the other hand, Article 366(29A)(d) deals with a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. The law on definition of goods enunciated in Tata Consultancy case was quoted with approval by the Apex Court in the judgment in BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT . The law as to whether the software is goods or not is no longer res integra in view of the above dictum of the Apex Court. Hence, in the impugned matter on software activation charges Appellant is not liable to pay service tax. Thus, the amount collected by the Appellant from their customers against as activation charges of equipment/ software features are covered under the activity of sales of goods and not covered under the provisions of Service as defined in the Act. Therefore, we don t find any merits in impugned order. Time Limitation - HELD THAT - The appellant admittedly paid the Sales Tax/ VAT duty on the entire transaction and also issued invoice/bills to customer for the above disputed transactions. Therefore, the entire activity of appellant is very much on record. Appellant also disclosed the said transaction in their Balance Sheet. Accordingly, no suppression or mis-declaration can be attributed to the appellant for invoking extended period of demand. Accordingly, the demand for longer period is not sustainable on the ground of limitation also. Appeal allowed.
Issues Involved:
1. Classification of "Software Activation" income as sale of goods or taxable service. 2. Applicability of Service Tax on "Software Activation" charges. 3. Interpretation of "goods" under VAT/CST laws and its implications. 4. Calculation of Service Tax demand. 5. Scope of Show Cause Notice (SCN) and adherence to natural justice. 6. Applicability of Rule 2A of Service Tax (Determination of Value) Rules, 2006. 7. Consideration of "Cum-tax-value." 8. Limitation period for Service Tax demand. Issue-wise Detailed Analysis: 1. Classification of "Software Activation" Income: The Tribunal examined whether the "Software Activation" charges should be classified as a sale of goods or a taxable service. The appellant argued that the software embedded in telecom equipment was sold to customers, and the activation of specific software features was done by overseas suppliers. The appellant collected activation charges, paid VAT/CST on the entire amount, and retained a portion as profit. The Tribunal found that the transaction was a sale of goods, not a service, as the appellant was not providing any service but merely selling goods. 2. Applicability of Service Tax: The Tribunal considered whether Service Tax was applicable to "Software Activation" charges under "Business Auxiliary Services." It concluded that the appellant's activity of selling software did not constitute a service. The appellant was not a service provider but a seller of goods, and therefore, Service Tax was not applicable. 3. Interpretation of "Goods" under VAT/CST Laws: The Tribunal referred to the definitions under the Gujarat Value Added Tax Act and the Central Sales Tax Act, which include the right to use (RTU) as a sale of goods. It cited the Supreme Court's judgment in Tata Consultancy Services, which held that software, whether tangible or intangible, qualifies as goods. The Tribunal confirmed that "Software Activation" charges fell under the definition of goods and were subject to VAT/CST, not Service Tax. 4. Calculation of Service Tax Demand: The appellant argued that if the activity was considered a service, the Service Tax demand should only be on the profit margin retained by the appellant, not the entire activation charges. The Tribunal found the computation of Service Tax demand by the Revenue to be incorrect as it included the entire amount collected, which was subject to VAT/CST. 5. Scope of Show Cause Notice (SCN): The appellant contended that the SCN did not specify how "Software Activation" was covered under "Business Auxiliary Services." The Tribunal agreed, stating that the Department cannot conclude a case not made out in the SCN, and the findings must be within the scope of the notice. The Tribunal found the Revenue's demand beyond the SCN's scope, violating principles of natural justice. 6. Applicability of Rule 2A of Service Tax (Determination of Value) Rules, 2006: The appellant argued that under Rule 2A, the value of goods should not be included in the value of taxable service. The Tribunal agreed, noting that the entire amount collected was for the sale of goods, which should be excluded from the Service Tax calculation. 7. Consideration of "Cum-tax-value": The appellant requested that if Service Tax was payable, it should be calculated on a "cum-tax" basis under Section 67(2) of the Finance Act, 1994. The Tribunal did not find it necessary to address this issue in detail, given its conclusion that the activity was a sale of goods, not a service. 8. Limitation Period for Service Tax Demand: The appellant argued that the demand was barred by limitation, as there was no deliberate attempt to evade tax. The Tribunal found that the appellant had paid VAT/CST, issued invoices, and disclosed transactions in its balance sheet. Therefore, no suppression or mis-declaration was attributable to the appellant, and the extended period for demand was not applicable. Conclusion: The Tribunal set aside the impugned order, concluding that "Software Activation" charges were for the sale of goods, not a taxable service. The appeal was allowed with consequential relief in accordance with the law.
|
