2019 (5) TMI 464 - AT - Service Tax

Classification of services - Reverse charge mechanism - appellant procured and utilized the design software of M/s Lear Corporation, USA through an online computer network - whether the services received by the Appellant from M/s Lear Corporation, USA against software usage agreement are in the nature of management, maintenance or repair service as alleged by the Revenue or in the nature of information technologies software service claimed by the Appellant? HELD THAT - Undisputedly, by an agreement between the Appellant and M/s Lear Corporation, USA for usage of software, the Appellant agreed to pay annual maintenance charges which M/s Lear Corporation, USA required to pay to the vendors of the softwares. These charges which have been paid by the Appellant to M/s Lear Corporation, USA has been claimed as software usage charges and not maintenance charges for the software - Further, there is no evidence in support of the claim of the Appellant that what they were required to pay M/s Lear Corporation, USA was not the maintenance charges for usage of the software but the charges for the software. On the other hand, M/s Lear Corporation, USA had paid to the vendors maintenance charges of the software which they ultimately collected from the Appellant. Therefore, the Ld. Commissioner has rightly classified the services received by the Appellant under the category of management, maintenance, or repair service under Section 65 (105)(zzg) read with Section 65(64) of Finance Act, 1994. Whether the services received through internet is taxable from 01.03.2008 as claimed by the Appellant? - HELD THAT - The issue has been considered by this Tribunal in the case of VODAFONE CELLULAR LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-III 2017 (12) TMI 1205 - CESTAT MUMBAI where it was held that Such services were brought into tax net by insertion of proviso to Rule 3 (ii) of the Taxation of Services (Provided From Outside India and Received in India), Rules, 2006 vide N/N. 6/2008 - ST dt. 01.03.2008 - thus, the Appellant is required to discharge service tax from 01.03.2008. The matter is remanded to the Adjudicating Authority to recalculate the demand for the period from 01.03.2008 onwards - the imposition of penalty under Section 78 of Finance Act, 1994 is unwarranted. However, penalty under Section 76 and 77 are imposable on the Appellant, hence sustained - appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services received by the appellant from M/s Lear Corporation, USA.
2. Taxability of services received through the internet prior to 01.03.2008.
3. Documentary evidence supporting the nature of payments made.
4. Applicability of penalties under various sections of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services:
The primary issue was whether the services received by the appellant from M/s Lear Corporation, USA under a software usage agreement were in the nature of "management, maintenance, or repair service" or "information technology software service." The appellant contended that the payments made were for software usage, not maintenance. However, the Commissioner observed that the invoices indicated the payments were for "support software maintenance." The Tribunal upheld the Commissioner’s view, noting that the evidence did not support the appellant's claim that the payments were for software usage. The Tribunal concluded that the services were rightly classified under "management, maintenance, or repair service" as per Section 65(105)(zzg) read with Section 65(64) of the Finance Act, 1994.

2. Taxability of Services Received Through Internet Prior to 01.03.2008:
The appellant argued that services received through the internet became taxable only from 01.03.2008, following an amendment. The Tribunal referred to its decision in Vodafone Cellular Ltd Vs CCE, Pune III, which clarified that services provided through the internet became taxable from 01.03.2008 due to the insertion of a proviso to Rule 3(ii) of the Taxation of Services (Provided From Outside India and Received In India) Rules, 2006. Consequently, the Tribunal ruled that the appellant was liable to pay service tax only from 01.03.2008 and remanded the matter to the Adjudicating Authority for recalculating the demand from that date onwards.

3. Documentary Evidence Supporting the Nature of Payments Made:
The Commissioner had held that there was no documentary evidence to prove that the payments made by the appellant were for acquiring the right to use the software rather than for maintenance. The Tribunal agreed with this finding, noting that the invoices and the software usage agreement indicated the payments were for software maintenance services. The Tribunal emphasized that the appellant failed to provide evidence supporting their claim that the payments were for software usage.

4. Applicability of Penalties:
The Tribunal found that the imposition of a penalty under Section 78 of the Finance Act, 1994 was unwarranted. However, penalties under Sections 76 and 77 were deemed appropriate and were sustained, to be determined upon re-computation of the demand for the period after 01.03.2008.

Conclusion:
The Tribunal set aside the impugned order and partly allowed the appeal. The matter was remanded to the Adjudicating Authority to recalculate the demand for the period from 01.03.2008 onwards, with penalties under Sections 76 and 77 to be determined based on the recalculated demand.