2018 (9) TMI 1281 - AT - Service Tax

Scope of remand order - Whether the order-in-original while confirming the demand raised by the first three show-cause notices have travelled beyond the scope of remand order or Commissioner was right in confirming the said demand as has been done by him? - Held that - Only after going through all these documents, correct service tax determination was to be done and matter was remanded for taking into account of documentary evidences which would submit in support of their claim of having discharged of service tax liability. - While passing the order, Commissioner has done the same. He has considered looking into agreements and has concluded what he deemed fit in respect of leviability of service tax. The remand order does not conclude anything in respect of the nature of the software supplied or to say that these could not have been leviable to service tax. Accordingly, the order of Commissioner cannot be faulted on this count. Supply of services or not? - third party software - taxable under the head Information Technology Software services or not? - Held that - It is settled law that software is nothing but an Intellectual Property of a person who has developed the said software. The right to use the software is something what gets transferred and not software has per se. Even if it is provided on a media such as CD or Hard Drive. Software cannot be altering, modified or reproduced by the user of the said software. He can only use the same for the purposes authorized by the rightful owner and in the manner authorized and this is further supported by the fact that in each case the recipient enters into an End User License Agreement (EULA) which is binding in nature before he can make use of the said software - The approach of commissioner while dealing with the issues is in accordance with the international practices of treatment of the software related transactions. Thus the order of the Commissioner holding that these services are classifiable under the category of Information Technology Software Services after 16.05.2008 and prior to that under the category of Intellectual Proper Services cannot be faulted with. Valuation - inclusion of value of hardware provided in terms of Section 67 of the Finance Act, 1994 in assessable value - Held that - The value of goods used for provision of the taxable service cannot be excluded from the gross amount charged as consideration for the services provided just for the reason that sales tax / VAT has been paid on such goods and value of goods is shown separately. However when the goods are sold as part of provision of service and are shown separately then will the abatement in respect of the same shall be admissible or not needs to be considered. Notification No 12/2003-ST provided for such abatement - While concluding that with regards to the hardware when commissioner has upheld that they are the part of taxable service and their value should be included in the value of taxable services provided, Commissioner needs to consider the argument in respect of the abatement of the value if admissible under rules or notification applicable at the relevant time. Demand under the category of Intellectual Property Services for period prior to 16.05.2008 and under the category Information Technology Services from 16.05.2008 - the party had submitted that the demand cannot be made ahead which is not proposed in the show-cause notice - Held that - It is settled principle in law to proceed against any person, the basic requirement is that he should be put to sufficient notice about his contravention and allowed to make proper defense. Since the first show cause notice dated 19.10.2009 has been issued demanding service tax under the category of Management, Maintenance & Repair Service , the confirmation of demand under any other category, namely Intellectual Property Right Services for the period prior to 16.05.2008 cannot be justified and the order to that extent is definitely not maintainable - In the present case in three show-cause notices in respect of the same issue were proposed under Information Technology Software services and the party was having sufficient notice to answer the same under the said head in respect of the 1st show-cause notice dated 19.10.2009. When there is opportunity available to the extent, their stand in respect of a particular heading the order of Commissioner cannot be faulted with on that account - when sufficient notice has been given, it cannot be said that adjudicating authority has travelled beyond the scope of show cause notice while upholding the demand under the said head at least from 16.05.2008. Time Limitation - Noticee have contended that the notice dated 19th October 2009 is barred by limitation as they were under bonafide belief that the amount received by them under these Acts were not leviable to service tax - Held that - The said argument with regards to bonafide belief cannot be allowed. During the entire period, noticee was aware about leviability of service tax on the said products and in case they had any doubt they could have sought clarification from the concerned authorities - Without seeking such clarification and on his own deciding not to pay the tax cannot be a bonafide reason - time limitation rightly invoked. Demand of Interest - Held that - As the demand of taxes is liable to be confirmed for the period after 16.05.2008 appellant are required to pay the interest also. It is settled law that interest liability flow from the liability to pay tax if not paid in time. Penalty - Held that - In the present case the penalty imposed are mandatory penalties provided in law, they are to be held as civil liability accordingly. Reliance on Section 80 would be of no help in this case - however Commissioner should reconsider the issue of penalty afresh and determine whether the same can be imposed under section 78. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services and determination of service tax liability.
2. Scope of remand order and adherence by the Commissioner.
3. Applicability of VAT versus service tax on software transactions.
4. Taxability of sale of hardware.
5. Exemption for services provided to SEZ units.
6. Inclusion of octroi charges in taxable value.
7. Services rendered in Jammu & Kashmir.
8. Limitation and suppression of information.
9. Interest liability on unpaid service tax.
10. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of services and determination of service tax liability:
The Commissioner confirmed the service tax demand under 'Intellectual Property Right' services up to 15.05.2008 and 'Information Technology Software Services' from 16.05.2008. The software provided was not a packaged software sold off the shelf but designed to meet specific requirements under a license agreement. The ownership and intellectual property rights remained with the developer, making the transaction a temporary transfer of intellectual property rights rather than a sale of goods.

2. Scope of remand order and adherence by the Commissioner:
The Tribunal remanded the matter to the Commissioner to determine the correct service tax liability after examining agreements, bills, and payments. The Commissioner adhered to this directive by examining the relevant documents and concluding the service tax liability accordingly. The remand order did not preclude the Commissioner from classifying the services under the appropriate heads.

3. Applicability of VAT versus service tax on software transactions:
The appellant argued that third-party software transactions were sales of copyrighted articles subject to VAT, not service tax. However, the Commissioner held that the temporary transfer of the right to use software constituted a service. The Tribunal upheld this view, noting that the levy of VAT does not preclude the levy of service tax if the transaction involves a service element.

4. Taxability of sale of hardware:
The Commissioner found that the hardware supplied was part of comprehensive computer solutions and not standalone sales. Thus, the value of hardware was included in the taxable value of the service. The Tribunal agreed, citing that the mere payment of VAT does not exclude the transaction from service tax liability. The Commissioner was directed to consider abatement under Notification No. 12/2003-ST if applicable.

5. Exemption for services provided to SEZ units:
The services provided to SEZ units were subject to service tax, with the exemption to be claimed by way of refund by the SEZ unit or developer. The appellant did not provide evidence to show that the services were consumed within the SEZ. The Tribunal remanded this issue to the Commissioner for reconsideration.

6. Inclusion of octroi charges in taxable value:
Octroi charges, being a levy for transportation of goods, were not considered part of the taxable value of services. The Tribunal remanded this issue to the Commissioner for reconsideration based on evidence provided by the appellant.

7. Services rendered in Jammu & Kashmir:
Services rendered in Jammu & Kashmir were outside the taxable territory under the Finance Act, 1994. The Tribunal directed the Commissioner to re-quantify the demand after excluding such services.

8. Limitation and suppression of information:
The appellant's argument of bona fide belief was rejected. The Tribunal found that the appellant suppressed information by not declaring the amounts in their ST-3 returns. Thus, the extended period for raising the demand was justified.

9. Interest liability on unpaid service tax:
Interest on unpaid service tax is a settled law and flows from the liability to pay tax. The Tribunal upheld the interest liability as per the Supreme Court's decision in Commissioner of Trade Tax, Lucknow v. Kanhai Ram Thekedar.

10. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Tribunal upheld the imposition of penalties, noting that the penalties under Sections 76 and 78 are distinct and can be imposed simultaneously. However, the Commissioner was directed to reconsider the penalties in light of the Tribunal's observations.

Conclusion:
The appeals were allowed, and the matter was remanded back to the adjudicating authority for reconsideration of the issues post 16.05.2008, considering the Tribunal's observations. The order was pronounced in Court on 18.09.2018.