2014 (5) TMI 1019 - AT - Service Tax

Demand of service tax - business auxiliary service - Held that - With effect from 16-5-2008, Information Technology Service became taxable under the Finance Act. As per the definition of Information Technology Services provided under Section 65(53a) means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment. We have gone through a copy of the agreement which is on record whereby the applicants are undertaking activity of system development and maintenance, computer operations and support, etc. In view of above, we prima facie find the merit in the contention of the applicant that the applicant is not providing business auxiliary service but in fact are providing Information Technology Service which has become taxable only with effect from 16-5-2008. In view of above, pre-deposit of the dues is waived and recovery thereof stayed during the pendency of the appeal - Stay granted.

Summary

Issues:
Waiver of pre-deposit of Service Tax, classification of services as business auxiliary service or Information Technology Service, applicability of Service Tax.

Analysis:
The issue before the tribunal was the waiver of pre-deposit of Service Tax amounting to Rs. 5,39,06,150/-, interest, and penalty. The dispute arose from the demand raised for the period 18-4-2006 to 16-5-2008, alleging that the applicant provided business auxiliary service liable to Service Tax. The applicant contended that they offered Information Technology Service, taxable from 16-5-2008, and were registered as such with the Revenue at that time, paying the applicable Service Tax. They argued that prior to 16-5-2008, they were not liable for Service Tax on business auxiliary service as they were engaged in system development and maintenance activities. The applicant referenced the agreement with SKF Sweden to support their claim, highlighting that the services rendered were related to Information Technology Software, not business auxiliary service. On the other hand, the Revenue asserted that the services provided were akin to customer care service falling under business auxiliary service, thus subject to Service Tax.

Upon examination, the tribunal noted that Information Technology Service was made taxable under the Finance Act effective from 16-5-2008. Referring to the statutory definition of Information Technology Services under Section 65(53a), encompassing various technological aspects, the tribunal reviewed the agreement on record detailing the applicant's activities in system development, maintenance, and computer operations. Consequently, the tribunal found merit in the applicant's argument that they were not offering business auxiliary service but rather Information Technology Service, which became taxable only post 16-5-2008. Consequently, the tribunal granted the waiver of pre-deposit and stayed the recovery of dues during the appeal process, acknowledging the prima facie validity of the applicant's position.

In conclusion, the tribunal allowed the stay petition, recognizing the distinction between business auxiliary service and Information Technology Service, thereby granting relief to the applicant by waiving the pre-deposit of Service Tax, interest, and penalty, pending the appeal proceedings.