2024 (2) TMI 911 - AT - Service Tax

Non-payment of service tax - non-payment of tax on the ground that those services are related to software services which became taxable only with effect from 16.05.2008 where as the period in the present case involved is from March, 2006 to March, 2008 - time limitation - Suppression of facts or not - HELD THAT - It is found that prima facie force in the claim of the appellant that the services are not classifiable under management consultant service whereas the same is prima facie classifiable as software services in view of the judgment in the case of IBM INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, BANGALORE 2009 (4) TMI 314 - CESTAT, BANGALORE and the services of software came under the tax net w.e.f. 16.05.2008. However, without going into the merit of the case, the appellant have made out a strong case on limitation. In the present case against the same contract the appellant have been paying service tax in respect of some of the activity of service received from the board, whereas in respect other activities, they have not paid the service tax under a bona fide belief that those are related to software services. On the entire services they have been paying service tax while providing services to M/s Reliance Industries Ltd. It is also fact that whatever service tax was paid on the part of the activity i.e. project management and validation service, the appellant have availed the Cenvat credit and they are discharging the service tax in respect of overall services which includes all the activity of service received form abroad, while forwarding to M/s Reliance Industries Ltd. - the entire exercise is revenue neutral. In this position, no mala fide can be attributed to the appellant as there is no intent to evade payment of tax due to revenue neutrality of the case. It is settled law that when there is a revenue neutrality in any demand no suppression of the fact can be attributed to the assessee. The present case is on much batter footing as the appellant has paid service tax on the part of the activity of the service received from abroad. Therefore, there was no suppression of fact on the part of the appellant. Moreover, the present case is clearly of revenue neutral. In the present case, the demand was raised for the period from March, 2006 to March, 2008 whereas the show cause notice was issued on 20.06.2011 i.e. much after the normal period. Accordingly, the entire demand falls under the extended period. The demand is not sustainable on the ground of limitation itself. Hence, impugned order is set aside and appeal is allowed.

Summary

Issues Involved:

1. Taxability of software-related services under 'Management Consultant Services'.
2. Double taxation on the same service charges.
3. Nexus of the received amount to taxable service.
4. Revenue neutrality.
5. Limitation period for raising the demand.
6. Service tax liability of sub-contractors.
7. Inclusion of reimbursement of travel and living expenses in taxable service value.
8. Taxability of the supply of goods.
9. Applicability of service tax on services received before 18.04.2006.

Summary:

1. Taxability of Software-Related Services:
The appellant argued that software-related services provided by M/s. Fisher Rosemount System, Inc. (M/s. FRS) should not be classified under 'Management Consultant Services' as these services were excluded from the scope of 'consulting engineering services' before 16.05.2008. The tribunal acknowledged the appellant's reliance on the IBM India Pvt. Ltd. case, where software services were deemed non-taxable under 'management consultancy' before the specified date.

2. Double Taxation:
The appellant contended that they had already paid service tax on the entire contract value received from Reliance Industries Ltd. (RIL), which included services rendered by M/s. FRS. The tribunal agreed, citing that demanding service tax again on the same services rendered by M/s. FRS would amount to double taxation.

3. Nexus of Received Amount to Taxable Service:
The appellant argued that amounts received for software-related services, such as Application Software, Skid FAT, Training System Service, and Application Software FAT, had no nexus to 'management consultancy' and thus should not be considered taxable. The tribunal noted that these services were related to software and supported the appellant's view.

4. Revenue Neutrality:
The tribunal observed that the appellant had been paying service tax on project management and validation services and availing Cenvat credit. Since the services provided to RIL included these activities, any additional tax liability would be revenue neutral, negating any intent to evade tax.

5. Limitation Period:
The show cause notice was issued in November 2010 for the period March 2006 to March 2008, which the appellant claimed was barred by limitation. The tribunal agreed, citing the absence of malafide intent and the revenue-neutral nature of the case, making the extended period inapplicable.

6. Service Tax Liability of Sub-Contractors:
The appellant argued that M/s. FRS, as a sub-contractor, should not be liable for service tax if the main contractor (appellant) had already paid it. The tribunal referred to earlier circulars and judgments supporting this view and ruled that the demand on the sub-contractor was not sustainable.

7. Reimbursement of Travel & Living Expenses:
The appellant contended that reimbursement of travel and living expenses should not be included in the taxable value. The tribunal agreed, referencing the Supreme Court judgment in Intercontinental Consultants & Technocrats Pvt. Ltd.

8. Taxability of Supply of Goods:
The appellant argued that the supply of items worth $2,47,562/- should be considered as goods and not liable to service tax. The tribunal acknowledged this point without further elaboration.

9. Services Received Before 18.04.2006:
The appellant argued that services received before 18.04.2006 were not taxable as Section 66A was incorporated only from that date. The tribunal agreed, referencing the Indian National Shipowners Association case.

Conclusion:
The tribunal set aside the demand on the grounds of limitation and revenue neutrality, ruling in favor of the appellant. The impugned order was thus annulled, and the appeal allowed.