2023 (6) TMI 997 - AT - Service Tax

Levy of Service Tax - management or business consultant service - agreement with M/s. CIBA Switzerland whereby it was agreed to share the costs incurred towards development of enterprise resource planning (ERP) software and reporting and replace existing system used by the appellant - reverse charge mechanism - penalties - HELD THAT - The appellant have received services from foreign based provider namely CIBA, Switzerland and BASF, SEA, Singapore towards ERP system related services. As per the revenue, the said service up to 15.05.2008 is classifiable under management or business consultant service whereas revenue itself has admitted that the same services is classified under Information Technology Software Service w.e.f 16.05.2008. This clearly shows that the service received by the appellant towards implementation of ERP system related services is falling under Information Technology Software Service . Under this admitted position by the Revenue itself the said service cannot be taxed prior 16.05.2008 under Management or Business Consultant Service therefore, the service tax demand which is disputed up to 15.05.2008 is not sustainable under Management or Business Consultant Service . The very same issue under identical fact has been considered by CESTAT Bangalore in the case of IBM INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, BANGALORE 2009 (4) TMI 314 - CESTAT, BANGALORE wherein it was held that it cannot be liable to Service Tax for a period prior to that. In the present case, the entire period is prior to 16-5-2008. The appellants have clearly shown that prior to 16-5-2008, even the services rendered by the appellant were excluded from the scope of consulting engineer‟s service and also the judicial pronouncements made it clear that they would not be covered under the management consultancy services. The service tax demand under the head of management or business consultant service for the period prior to 16.05.2008 is not sustainable - As regard the service tax liability for the period from 16.05.2008, the same has been discharged by the appellant along with interest. Hence, the same is maintained. Since the issue involved is of pure interpretational nature no mala-fide can be attributed to the appellant for non-payment or short payment of service tax, moreover, there is force in argument of the learned counsel that since the appellant was entitled for cenvat credit of the service tax demanded, entire issue is revenue neutral. The appellant has made out a strong case for wavier of penalties invoking Section 80 of the Finance Act, 1994 - penalties set aside - appeal allowed.

Summary

Issues Involved:
1. Taxability of ERP implementation services under different service categories.
2. Extended period of limitation and suppression of facts.
3. Revenue neutrality and entitlement to CENVAT credit.
4. Imposition of penalties under various sections of the Finance Act, 1994.

Summary:

1. Taxability of ERP implementation services under different service categories:
The appellant entered into an agreement with M/s. CIBA Switzerland for ERP system services, which were classified by the revenue under "Management or Business Consultant Service" up to 15.05.2008 and under "Information Technology Software Service" from 16.05.2008. The appellant paid service tax for the latter period but disputed the former classification. The Tribunal referred to the decision in IBM India Pvt. Ltd. - 2009 (4) TMI 314, which held that ERP implementation services are not taxable under "Management Consultant Service" prior to 16.05.2008, and thus, the demand for this period is not sustainable.

2. Extended period of limitation and suppression of facts:
The show cause notice invoked an extended period of limitation under Section 73 of the Act, alleging suppression of information by the appellant. The Tribunal found no suppression of facts, noting that the issue was interpretational and the appellant had paid the applicable service tax along with interest for the period post 16.05.2008.

3. Revenue neutrality and entitlement to CENVAT credit:
The appellant argued that the issue was revenue neutral as they were entitled to CENVAT credit for the service tax paid. The Tribunal recognized this argument, noting that the appellant could avail of the credit, thus supporting the appellant's case for waiver of penalties.

4. Imposition of penalties under various sections of the Finance Act, 1994:
Given the interpretational nature of the issue and the revenue-neutral position, the Tribunal invoked Section 80 of the Finance Act, 1994, to set aside the penalties imposed under Sections 76, 77, and 78. The Tribunal emphasized that no mala-fide intent could be attributed to the appellant.

Conclusion:
The Tribunal modified the impugned order by setting aside the service tax demand for the period prior to 16.05.2008 and the penalties, while maintaining the service tax liability for the period post 16.05.2008, which had already been discharged by the appellant. The appeal was allowed to this extent.