2017 (10) TMI 1192 - AT - Service Tax

Repairs and maintenance of software - levy of service tax - whether classifiable under repairs and maintenance of goods or otherwise? - CBEC circular no. 70/19/03-ST dated 17.12.2003 - Held that - even CBEC was not sure about the liability of service tax on the said services during the period 09.07.2004 to 06.10.2005. The first circular approving the liability of service tax on the said activity was issued on 07.10.2005 and the circular prior to that clearly held that the said service is not taxable. In these circumstances, it cannot be said that the appellants could not have had a bonafide belief that the said service was not taxable. Extended period of limitation - penalty - Held that - The show-cause notice and impugned order does not give any specific grounds as to why extended period can be invoked in such circumstances. In these circumstances, the extended period of limitation cannot be invoked and consequently the demand of duty and penalty cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of service tax and imposition of penalty under Section 76 and 78.

Analysis:
The appellant, M/s. Sonata Information Technology Ltd., filed an appeal against the confirmation of demand of service tax and imposition of penalty under Section 76 and 78. The issue revolved around the taxability of maintenance and repair service of software. The appellant argued that initially, CBEC had clarified that maintenance and repair service of software was exempted. However, subsequent circulars clarified that software is considered goods, making maintenance and repair services of software liable to service tax. The appellant contended that they discharged the service tax liability only after the clarification by the board regarding the levy of service tax on repair of computer software. They highlighted the amendments in the definition of Management, Maintenance, and repair service, emphasizing that the circular held contrary to statutory provisions by the Hon'ble High Court. The appellant also challenged the invocation of the extended period of limitation for issuing the show-cause notice.

The respondent relied on the impugned order and reiterated arguments made in various circulars of the Board. The Tribunal examined the rival submissions and observed that the CBEC had initially clarified that maintenance of software was not chargeable to service tax. However, subsequent circulars modified this view, stating that any service provided in relation to maintenance or repair of software is liable to service tax. The Tribunal noted the uncertainty surrounding the liability of service tax on such services during a specific period and found that the appellants could have had a bonafide belief that the service was not taxable. Consequently, the Tribunal held that the extended period of limitation could not be invoked, leading to the allowance of the appeal on grounds of limitation.

In conclusion, the Tribunal allowed the appeal on grounds of limitation, emphasizing the lack of specific grounds for invoking the extended period of limitation and the uncertainty surrounding the taxability of maintenance and repair services of software during the relevant period.

Judgment:
The appeal was allowed on grounds of limitation, with the Tribunal determining that the demand of duty and penalty could not be sustained due to the inability to invoke the extended period of limitation.