2019 (2) TMI 29 - AT - Service Tax

Taxability for the period prior to 09.07.2004 - Maintenance and Repair Services - period under dispute is 09.07.2004 to 31.03.2006 - N/N. 20/2003-ST dated 21.08.2003 rescinded vide N/N. 07/2004-ST dated 09.07.2004 - Circular No. 81/2/2005-ST dated 07.10.2005 - Held that - N/N. 20/2003-ST dated 21.08.2003 exempted services provided to a customer in relation to maintenance or repair of computers, computer systems or computer peripherals from payment of service tax. Later, it was clarified vide Circular dated 17.12.2003 that the maintenance of software is also a part of computer systems and therefore, would be covered by the exemption Notification. The above Notification was later rescinded by Notification No. 07/2004 dated 09.07.2004. Although the Notification rescinded the above exemption Notification, the said services were not brought into the levy of service tax by the specific Notification - Later, Circular No. 81/2/2005-ST dated 07.10.2005 clarified that maintenance or repair or servicing of software is leviable to service tax. There was much confusion as to whether Maintenance and Repair of computer software is subject to levy of service tax during the disputed period. However, taking note of the fact that the Circular dated 07.10.2005 has been quashed by the Hon ble jurisdictional High Court, we are of the considered opinion that the Commissioner (Appeals) has rightly applied the law and precedents so as to set aside the demand, interest and penalties. Demand do not sustain - appeal dismissed - decided against Revenue.

Summary

Issues:
Department's appeal against setting aside of demand, interest, and penalties for service tax on maintenance and repair of computer software.

Analysis:
The appeal concerned a dispute regarding the levy of service tax on maintenance and repair of computer software by a company providing software development services. The Department contended that post rescission of Notification No. 20/2003-ST by Notification No. 07/2004-ST, maintenance and repair of computer software became taxable. A Show Cause Notice was issued, leading to a demand of &8377; 37,84,409/- along with interest and penalties, which was set aside by the Commissioner (Appeals), prompting the Department's appeal before the Tribunal.

The Department argued that Circulars issued post the rescission clarified that services related to software maintenance are taxable. The respondent had not paid service tax for the disputed period, and the Commissioner's decision was influenced by the Board Circulars, which, according to the Department, should not have been the case. The Department sought to establish that the demand should have been upheld by the Commissioner.

Upon review, the Tribunal noted the evolution of notifications and Circulars governing the taxation of software maintenance services. While Circular No. 81/2/2005-ST clarified the taxability of software maintenance services, the High Court had later quashed this Circular in a separate case, rendering it inapplicable for the levy of service tax. The respondent had started paying service tax from 2006 onwards, following a clarifying Circular issued by the Board in 2006.

The Tribunal acknowledged the confusion surrounding the taxability of maintenance and repair of computer software during the disputed period. Considering the legal precedents and the quashing of the relevant Circular by the High Court, the Commissioner's decision to set aside the demand, interest, and penalties was deemed appropriate. The appeal by the Department was dismissed, affirming the Commissioner's order.