2017 (1) TMI 1189 - AT - Service Tax

Maintenance or repair services of computer software - levy of tax or not, in doubt - invocation of extended period of limitation - Held that - tax liability on this service was not free from doubt and was subject matter of large number of litigations. Invoking fraud, suppression and intention to evade payment of duty is not legally sustainable in such situation. It was held that there was a bonafide doubt regarding tax liability and as such, the demand for extended period is not sustainable. The chronological development relevant to the tax liability on maintenance or computer software have been elaborately recorded in the impugned order. It cannot be disputed that the Board itself earlier clarified that the maintenance or repair of computer software is not taxable. It cannot be alleged that the tax liability was willfully evaded by the respondent - appeal dismissed - decided against Revenue.

Summary

Issues:
Non-payment of service tax on maintenance or repair services of computer software during a specific period, imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994, appeal against the order of Commissioner (Appeals-I), Customs & Central Excise, Jaipur based on limitation grounds.

Analysis:
The appeal pertains to the non-payment of service tax on maintenance or repair services of computer software from 9.7.2004 to 6.10.2005. The Original Authority found the respondent liable to pay service tax and imposed penalties under relevant sections of the Finance Act, 1994. However, the Commissioner (Appeals) allowed the appeal citing limitation as the grounds. The Revenue challenged this decision in the present appeal.

During the proceedings, the Revenue presented arguments, but no representation was made on behalf of the respondent. The impugned order highlighted that the demand was unsustainable due to limitation under Section 73 of the Finance Act, 1994. It was noted that certain services related to maintenance of computer software were exempt from service tax as per specific notifications and circulars issued by CBEC. The order also referenced the clarification that software is considered goods and any service related to its maintenance or repair is liable to service tax, following a Supreme Court decision in a relevant case.

Moreover, the order discussed the sequence of events regarding the tax liability on maintenance of computer software, including the insertion of an explanation under Section 65(64) of the Act. The order emphasized that the tax liability on this service was not clear-cut and had been the subject of numerous litigations, making allegations of fraud or intention to evade payment of duty legally unsustainable. The order extensively reviewed the development and case laws related to the issue, ultimately concluding that the demand for the extended period was not sustainable due to genuine doubts regarding tax liability.

The Tribunal found that the respondent did not willfully evade tax liability, especially considering the evolving nature of the tax treatment of maintenance or repair of computer software. The order dismissed the Revenue's appeal, stating there was no merit to interfere with the impugned decision. The judgment was pronounced on 30.12.2016.