2023 (9) TMI 656 - AT - Service Tax

Classification of services - Business Auxiliary Service or not - providing ERP system - suppression of facts or not - time limitation - HELD THAT - There is no dispute that the appellant have received ERP System for their use from their head office USA. In case of service tax liability and reverse charge mechanism, the service tax is payable considering the service provided by the service provider in the present case head office USA is a service deemed to have been provided by the service recipient, therefore, in case of procurement of ERP System, the appellant s head office USA is a service provider of ERP system which is nothing but Information Technology Service, therefore, in the hand of the appellant, the classification service must be same as IT Service - In the present case, the demand was raised under BAS which admittedly excluded the IT Service, which is not in dispute for the relevant period - the service received by the appellant is indeed Information Technology Service and during the relevant period, the same was not taxable in terms of exclusion from Business Auxiliary Service. It is settled that the ERP Service is clearly an Information Technology Service. The same being excluded from the Business Auxiliary Service cannot be charged to service tax under Business Auxiliary Service. There are force in the argument of the learned counsel with regard to the limitation in the present case, if at all there is any service tax liability, the appellant is entitled for cenvat credit of the same and due to which the entire exercise will amount to Revenue neutral. In this position as settled in various judgments wherever there is a revenue neutral situation, the malafide cannot be attributed to the assessee. In the present case also, there is no mens rea or suppression of fact etc., on the part of the appellant, therefore, the demand is not sustainable on the ground of time bar also. The impugned order is not sustainable - Appeal allowed.

Summary

Issues Involved:
1. Classification of ERP System services under Business Auxiliary Service (BAS) or Information Technology Service (ITS).
2. Applicability of service tax for the period 2006-07 to 2007-08.
3. Invocation of extended period for demand and limitation.
4. Entitlement for CENVAT credit and revenue neutrality.

Summary:

1. Classification of ERP System services under BAS or ITS:
The appellant received an ERP system from its parent company in the USA and used it for business-related activities. The department classified the ERP system under Business Auxiliary Service (BAS) and demanded service tax. However, the appellant argued that the ERP system falls under Information Technology Service (ITS), which was excluded from BAS during the relevant period. The Tribunal observed that the ERP system is indeed an ITS and thus not taxable under BAS for the relevant period, supported by various judgments such as DATAWARE & M/S P.RC ASSOCIATES KURNOOL and FEDERAL BANK LTD.

2. Applicability of service tax for the period 2006-07 to 2007-08:
The Tribunal held that the ERP system services received by the appellant are classified as ITS, which was excluded from BAS during the relevant period. Therefore, the service tax demand under BAS for the period 2006-07 to 2007-08 is not sustainable. The Tribunal relied on judgments like BASF INDIA LTD and IBM India Pvt. Ltd., which clarified that ERP implementation services fall under ITS and are not taxable under BAS before 16.05.2008.

3. Invocation of extended period for demand and limitation:
The appellant contended that the show cause notice issued on 12.01.2010 for the period 2006-07 to 2007-08 was beyond the normal period of limitation and thus time-barred. The Tribunal agreed, noting that the appellant's entitlement to CENVAT credit made the entire exercise revenue-neutral, negating any malafide intention or suppression of facts. Consequently, the demand was not sustainable on the grounds of time-bar as well.

4. Entitlement for CENVAT credit and revenue neutrality:
The Tribunal acknowledged the appellant's right to CENVAT credit, which rendered the entire tax demand revenue-neutral. This, combined with the absence of any malafide intention, further supported the appellant's case. The Tribunal invoked Section 80 of the Finance Act, 1994, to waive penalties, considering the interpretational nature of the issue.

Conclusion:
The Tribunal set aside the impugned order, ruling in favor of the appellant by confirming that the ERP system services are classified under ITS and not taxable under BAS for the relevant period. The demand was also deemed time-barred, and penalties were waived. The appeal was allowed.