2023 (11) TMI 101 - AT - Service Tax

Recovery of Service tax alongwith interest and penalty - non-payment of service tax - Management, Maintenance and Repair Services - providing IT support services to its clients in and outside service - period 2006-07 - HELD THAT - Hon ble Madras High Court in case of KASTURI SONS LTD, CHENNAI VERSUS UNION OF INDIA OTHERS 2011 (2) TMI 76 - HIGH COURT OF MADRAS was in any case not even concerned with the taxation under the category of repair and maintenance service, the issue in case of Kasturi Sons was in respect of taxation under the category of Business Auxiliary Service as has been noted in the order of Hon ble High Court. Hon ble High Court did not decide the issue in respect taxability under the category of Management Repair and Maintenance Services but had observed that the circular issued giving retrospective effect to the amendments made by Finance Act, 2007, cannot be upheld and the same should have no application while deciding the cases for the past period. Thus it is observed that on the issue of the taxation under category of Management Maintenance and Repair Services various benches of tribunal has consistently taken the view that the software maintenance services which are akin to the services provided by the appellant in present case are only taxable from 01.06.2007. Nothing contrary is available on records. Appellant has been paying service tax in respect of these services as submitted by the counsel for appellant with effect from 01.06.2007 - there are no merits in the impugned order. Levy of penalties under Section 76, 77 and 78 of the Finance Act, 1994 - It is contended in the appeal that separate penalties should have been imposed under each section - HELD THAT - As it is held that the demand is not maintainable in the present case, the issue of imposition of any penalty on the appellant cannot survive. Accordingly, this appeal filed by the revenue asking for imposition of penalties under Section 76, 77 78 is without any merit. Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax under "Management, Maintenance and Repair Services" for the period 2006-07.
3. Validity of invoking the extended period for the demand of service tax.
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Summary of Judgment:

1. Classification of Services Provided by the Appellant:
The appellant is engaged in providing IT support services, including installation, customization, development of patches, up-gradation, and enhancement of software. The core issue was whether these services fall under "Information Technology Software Service" or "Management, Maintenance, and Repair Services" as defined by Section 65(105)(zzg) of the Finance Act, 1994. The impugned order classified these services under "Management, Maintenance, and Repair Services," making them liable for service tax.

2. Applicability of Service Tax Under "Management, Maintenance and Repair Services":
The Tribunal considered various decisions, including IBM India Pvt Ltd., Kasturi & Sons Ltd., SAP India Pvt Ltd., Persistent System Ltd., and Phoenix IT Solutions Ltd., which consistently held that software maintenance services were not taxable under "Management, Maintenance, and Repair Services" prior to 01.06.2007. The Tribunal found that the impugned order's classification of the appellant's services under "repair and maintenance services" was incorrect, as the services were only taxable from 01.06.2007.

3. Validity of Invoking the Extended Period for the Demand of Service Tax:
The show cause notice was issued on 24.10.2011, invoking the extended period under the proviso to Section 73(1) of the Finance Act, 1994. The Tribunal noted that all relevant facts were in the knowledge of the revenue by September 2008, making the invocation of the extended period unjustified. The demand was thus found to be time-barred.

4. Imposition of Penalties Under Sections 76, 77, and 78 of the Finance Act, 1994:
The Tribunal held that since the demand itself was not maintainable, the imposition of penalties under Sections 76, 77, and 78 could not survive. Consequently, the appeal by the revenue for separate penalties was dismissed.

Conclusion:
The Tribunal allowed the appeal filed by the appellant, setting aside the impugned order, and dismissed the appeal filed by the revenue. The demand for service tax and the imposition of penalties were found to be without merit.