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2015 (6) TMI 741 - AT - Service TaxDenial of refund claim - Classification of service - Consulting Engineers Service or Maintenance or Repair Service - Difference of opinion - matter is placed before the Hon ble President for reference to the Third Member on the following points - (i) Whether under the facts and circumstances, software will be treated as goods w.e.f. 9.7.2004 in view of clarification vide Ministry of Finance, Department of Revenue s letter F.No. 256/1/2006-CX.4 dated 7.3.2006 read with Circular No. 81/2/2005-Service Tax, which provides that service tax is applicable on maintenance or repair of software service under Section 65(105)(zzg) and also in view of ruling of the Hon ble Supreme Court in the case of TCS (supra), wherein it was held that software is goods, the appellant have provided taxable services under Section 65(105) (zzg) read with Section 65(64) i.e. management, maintenance or repair , being services (i) maintenance of software, (ii) testing services, (iii) re-engineering services under Section 65(105)(r), (iv) consultation and management in respect of ERP software implementation, and accordingly entitled to refund, as claimed, the services being admittedly exported. And As the appellant have rendered taxable services under Section 65(105)(zzg), the appellant have rightly availed CENVAT Credit under Rule 5 of Cenvat Credit Rules, 2004 as held by Member (Judicial). Or 1) Whether refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules is available when Rule 3 permitted credit on input services only to provider of taxable services. 2) Whether output services provided by the appellant are covered under the taxable service of Maintenance or Repair when the activity involved development and designing also of the software. 3) When the Commissioner (Appeals) did not examine all the contracts in order to decide whether the activity is of maintenance or repair only, should not the case be remanded back to him to enable him to examine all the contracts before arriving at a decision on the issue at 2 above.
Issues Involved:
1. Classification of the services provided by the appellant. 2. Admissibility of CENVAT Credit on input services for non-taxable output services. 3. Eligibility for refund of accumulated CENVAT Credit under Rule 5 of the Cenvat Credit Rules, 2004. 4. Interpretation of relevant provisions of Service Tax law and their application to the facts of the case. 5. Applicability of judicial precedents and circulars to the case. Issue-wise Detailed Analysis: 1. Classification of Services Provided by the Appellant: The appellant, a 100% EOU-STP unit engaged in exporting services such as Software Consultancy, Development of Software, Maintenance or Repair of Software (MRS), and Management Consultant services related to ERP software implementation, contended that their services should be classified under 'Maintenance or Repair Service' (Section 65(105)(zzg)) and 'Management Consultancy Services' (Section 65(105)(r)). The adjudicating authority, however, classified the services under 'Consulting Engineers Service' (Section 65(105)(g)), which excluded computer software engineering from its scope during the relevant period, making the services non-taxable. 2. Admissibility of CENVAT Credit on Input Services for Non-Taxable Output Services: The adjudicating authority and Commissioner (Appeals) rejected the refund claims on the grounds that the output services were exempt from Service Tax. They concluded that since the services were non-taxable, CENVAT Credit on input services was not admissible under Rule 3 and Rule 6 of the Cenvat Credit Rules, which allow credit only to providers of taxable services and bar availment of CENVAT Credit used in exempted services. 3. Eligibility for Refund of Accumulated CENVAT Credit under Rule 5 of the Cenvat Credit Rules, 2004: The appellant argued that they had excluded the amount of refund attributable to CENVAT Credit on input services used in the export of exempted services (software development and software consultancy). They claimed a refund for the remaining taxable services (Maintenance and Repair Services and ERP Consultancy Services). The Tribunal noted that the appellant was registered under 'Maintenance and Repair Service' and had provided technical literature supporting their claim. It was observed that maintenance or repair of software involves activities like corrective maintenance, adoptive maintenance, and perfective maintenance, which could be categorized under 'Maintenance or Repair Service.' 4. Interpretation of Relevant Provisions of Service Tax Law and Their Application to the Facts of the Case: The Tribunal examined the relevant provisions of the Cenvat Credit Rules and Service Tax law as they stood during the material time (July 2005 to December 2005). Rule 3 allowed credit on input services only to providers of taxable services, and Rule 5 allowed refund to manufacturers but not to service providers, who could only claim rebate under Notification No. 12/2005-ST. The Tribunal found that the Commissioner (Appeals) had not examined whether the refund was admissible to service providers under Rule 5 during the relevant period. 5. Applicability of Judicial Precedents and Circulars to the Case: The appellant relied on the Tribunal's decision in KPIT-Cummins Infosystem Ltd. and the Karnataka High Court's decision in mPortal India Wireless Solutions Pvt. Ltd., which supported the entitlement to a refund of unutilized credit for exported services. The Tribunal noted that the case of KPIT-Cummins Infosystem Ltd. related to a period after the amendment of Rule 5 in 2006, which allowed refunds to service providers. The Tribunal also considered the Board's Circular No. 81/2/2005-ST, which clarified that software incorporated in a media for use is to be treated as "goods," and any service related to its maintenance or repair is leviable to Service Tax. Separate Judgments Delivered: Majority Opinion: The Tribunal remanded the matter back to the Commissioner (Appeals) to re-examine the nature of services provided, considering the evidence presented by the appellant and the provisions of Service Tax law during the material time. The impugned order was set aside, and the appeal was allowed by way of remand. Dissenting Opinion: One member disagreed with the majority view, holding that the appellant had rightly classified the services under 'Management, Maintenance or Repair Service' and was entitled to refund. The dissenting member relied on the Supreme Court's judgment in TCS vs. State of Andhra Pradesh and the Karnataka High Court's decision in mPortal India Wireless Solutions Pvt. Ltd., concluding that the appellant was entitled to CENVAT Credit and refund. The appeal was allowed with consequential benefits, and the refund was to be granted expeditiously. Difference of Opinion: Due to the difference of opinion, the matter was placed before the Hon'ble President for reference to a Third Member to resolve the following points: 1. Whether software is to be treated as 'goods' from 9.7.2004, making the appellant's services taxable and entitled to refund. 2. Whether refund of CENVAT Credit under Rule 5 is available when Rule 3 permitted credit only to providers of taxable services. 3. Whether the output services provided by the appellant fall under 'Maintenance or Repair' service. 4. Whether the case should be remanded back to the Commissioner (Appeals) for examining all contracts to decide the nature of services provided.
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