2014 (11) TMI 169 - AT - Service Tax

Waiver of pre-deposit - Import of Information Technology Software - sale or service - right to use the software - end-user license is being provided to the customers in India. Appellant is the distributor of such end-use license - Held that - It is now settled law that only when the software as such is sold and is not a license to use the same, only then it becomes a transaction of sale. In this case there is neither a media containing a software nor a software itself as such has been sold to the customers. It was also mentioned by the learned counsel that even the purchase order is obtained by them and transmitted to the principal and principal only thereafter approves. The submission was that appellant was only a distributor and is only engaged in marketing, promotion of the software, etc., and therefore it can be said that appellant is providing Business Auxiliary Service (BAS) but not the ITSS. Unfortunately, even though the nature of service to some extent may be covered by BAS definition, in view of the specific coverage under clause (v) of the definition as considered by us above, the submission that the appellant s service is correctly classifiable under BAS and not under ITSS in our view cannot be sustained. Therefore, we have to hold that appellant has not made out a prima facie case in this case on merits. Extended period of limitation - A show-cause notice has been issued beyond the normal period and in this case admittedly the appellant could have utilized the CENVAT credit of service tax paid as a receiver in respect of their liability to be discharged for their Indian activities or even in respect of some software which is being serviced by them. Therefore it may not be proper to take a view at this stage that extended period is applicable in view of the revenue neutral situation. Therefore, we take a view that appellants have not made out a case for complete waiver in respect of normal period. Cenvat Credit - Held that - Credit availed by the appellant in respect of services provided by them to the units in SEZ. The learned counsel submits that retrospective amendment providing for availment of CENVAT credit on service provided to SEZ for the period in question before us was not available at the time when the Commissioner considered the issue and now according to the retrospective amendment, the appellant is eligible for the CENVAT credit and therefore the order for reversal of credit taken cannot be sustained. We find ourselves in agreement with the submission made and therefore the reversal of credit ordered cannot be sustained The view taken by the Tribunal that at least for the normal period the demand under the first category is sustainable, would indicate that the matter cannot be remanded without putting the appellant to terms. - stay granted partly - Matter remanded back.

Summary

Issues Involved:
1. Classification of services under 'Information Technology Software Service' (ITSS).
2. Applicability of extended period for demand.
3. Classification of services under clause (vi) of ITSS definition.
4. Eligibility of CENVAT credit for services provided to SEZ units.

Detailed Analysis:

1. Classification of services under 'Information Technology Software Service' (ITSS):
The primary issue revolves around whether the appellant's activities fall under the definition of 'Information Technology Software Service' (ITSS). The appellant contends that they are merely distributors of software for foreign principals and do not provide sub-licenses to Indian customers. The agreement clauses were examined, and it was noted that the appellant is responsible for marketing, promoting, and selling licenses, but not for providing sub-licenses directly. The Tribunal found that the appellant's role involves distributing the right to use software rather than selling the software itself, thus classifying it as a service and not a sale. Consequently, the appellant's activities were deemed to fall under ITSS, not Business Auxiliary Service (BAS).

2. Applicability of extended period for demand:
The appellant argued against the applicability of the extended period for the demand, citing a revenue-neutral situation due to the potential utilization of CENVAT credit. However, the Tribunal concluded that the appellant did not make a prima facie case for complete waiver regarding the normal period. Hence, the extended period could be applicable, and the demand for the normal period was upheld.

3. Classification of services under clause (vi) of ITSS definition:
The second category of demand pertained to the right to use information technology software supplied electronically. The appellant argued that they only facilitate the order transmission and do not directly provide the right to use the software. The Tribunal found no evidence of an end-user license agreement between the appellant and Indian customers. Therefore, it was concluded that the appellant made a prima facie case, and the demand under this category could not be sustained.

4. Eligibility of CENVAT credit for services provided to SEZ units:
The final issue concerned the CENVAT credit availed by the appellant for services provided to SEZ units. A retrospective amendment allowed for the availment of CENVAT credit for the period in question. The Tribunal agreed with the appellant that the reversal of credit ordered by the Commissioner could not be sustained due to this amendment.

Remand and Compliance:
Both parties agreed that the matter required remand for a detailed examination of the appellant's activities and their classification under the ITSS definition. The Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for fresh consideration, directing the appellant to deposit an amount of Rs. 40,93,971/- with interest for the normal period within eight weeks. Compliance with this directive was required for further adjudication.