2008 (1) TMI 253 - AT - Service Tax

Held that activity of software verification & validation and technical writing services is taxable under Technical Testing and Analysis services but supply of manpower to perform impugned activity at site of client is incidental to the aforesaid activity, so not taxable under Manpower Recruitment or Supply Agency - Prima facie, there appears to be suppression of material facts for the partial period, stay is partly granted

Issues:
1. Demand of service tax on 'Manpower Recruitment or Supply Agency's Service' and Technical Testing and Analysis Services.
2. Applicability of service tax on software testing and analysis.
3. Allegation of suppression of material facts.
4. Prima facie case against the demand of service tax on 'Manpower Recruitment or Supply Agency's Service'.
5. Prima facie case for the demand of service tax on Technical Testing and Analysis Services.
6. Plea of limitation regarding the availability of relevant materials.
7. Pre-deposit amount and stay of recovery.

Issue 1: Demand of service tax on 'Manpower Recruitment or Supply Agency's Service' and Technical Testing and Analysis Services

The judgment addresses the demand for service tax on two services, namely 'Manpower Recruitment or Supply Agency's Service' and Technical Testing and Analysis Services. The Commissioner imposed penalties and demanded over Rs. 1.05 crores from the appellants. The appellants were engaged in software verification & validation and technical writing services, with activities performed under various agreements with software developers and clients. The demand for service tax amounted to over Rs. 95 lakhs for technical testing and analysis services and over Rs. 10 lakhs for 'Manpower Supply Service.'

Issue 2: Applicability of service tax on software testing and analysis

The Revenue argued that software qualifies as 'goods' for service tax purposes based on legal precedents and circulars. The assessee contended that the activity of testing and analysis of software did not meet the criteria for service tax as per the definition of 'technical testing and analysis.' The judgment noted that the assessee's activities involved scientific testing and analysis of software, falling under the definition of 'technical testing and analysis.' The demand for service tax on Technical Testing and Analysis Services was considered prima facie sustainable.

Issue 3: Allegation of suppression of material facts

The assessee claimed that all relevant materials were provided to the department in 2005 and 2006, arguing against any suppression of facts. The judgment observed prima facie evidence of suppression before the mentioned period, impacting the plea of limitation.

Issue 4: Prima facie case against the demand of service tax on 'Manpower Recruitment or Supply Agency's Service'

The judgment found a prima facie case against the demand for service tax on 'Manpower Recruitment or Supply Agency's Service.' It was noted that the real activity was software validation and testing, with the supply of manpower being incidental. The Revenue failed to establish the assessee's engagement as a 'Manpower Recruitment or Supply Agency' as defined under the Finance Act.

Issue 5: Prima facie case for the demand of service tax on Technical Testing and Analysis Services

While the demand for service tax on 'Manpower Recruitment or Supply Agency's Service' lacked merit, the judgment found a prima facie case supporting the demand for service tax on Technical Testing and Analysis Services. The activities of the assessee were considered to fall within the definition of 'technical testing and analysis,' justifying the demand amounting to over Rs. 95 lakhs.

Issue 6: Plea of limitation regarding the availability of relevant materials

The judgment addressed the plea of limitation concerning the availability of relevant materials to the department. Prima facie evidence suggested suppression of material facts before 2005 and 2006, impacting the assessee's argument.

Issue 7: Pre-deposit amount and stay of recovery

Considering the overall view of the matter, the judgment directed the appellants to pre-deposit Rs. 20,00,000 within five weeks. Compliance with this directive would lead to a waiver of pre-deposit and stay of recovery concerning penalties and the balance amount of service tax.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Chennai highlights the various issues, arguments presented, and the tribunal's findings regarding the demand for service tax and related matters.

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