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2022 (2) TMI 1120 - AT - Service TaxLevy of service tax - software maintenance services - Business Auxiliary service or not - applicability of exemption N/N. 20/2003 from 21.8.2003 to 8.7.2004 - CENVAT Credit - exempt as well as taxable service - separate accounts not maintained - Rule 6(3)(c) of CENVAT Credit Rules - Revenue Neutrality. Software maintenance services - HELD THAT - Karnataka High Court has settled the issue in favour of the appellants in the case of THE PRINCIPAL COMMISSIONER OF SERVICE TAX VERSUS M/S. IBM INDIA PVT. LIMITED 2021 (2) TMI 513 - KARNATAKA HIGH COURT following the Madras High Court decision in the case of KASTURI SONS LTD, CHENNAI VERSUS UNION OF INDIA OTHERS 2011 (2) TMI 76 - HIGH COURT OF MADRAS holding that Admittedly as per the stand taken by the respondent themselves before the High Court of Madras, it is evident that activity of maintenance of computer software was exempt from the provisions of the Act prior to 2006 - the issue is no longer res integra and it is held that the appellants are not required to service tax on software maintenance services during the period July 9, 2004 to November 30, 2005. Availment of CENVAT credit - HELD THAT - The appellants have utilised Cenvat credit up to 20% of the tax payable during the period June 2007 to March 2008. During that period, tax of ₹ 135.16 lakhs was to be paid without utilising the Cenvat credit. However, they have paid the same after 1.4.2008 by utilising the balance of credit of 80% from the year 2007-2008. The appellants are entitled to utilise the balance 80% of the credit availed before 1.4.2008 after 1.4.2008. Having come to this conclusion, the appellant s action in paying service tax which fell due during 2007-2008 after 1.4.2008 is to be seen as a delayed payment. Accordingly, the appellants are required to pay interest at the applicable rate in terms of Section 75 of the Finance Act, 1994. The appellants are well established service tax registrants and therefore, we are of the considered opinion that the lapse of non-payment of service tax during the relevant period cannot be taken lightly - the appellants are entitled to utilise the balance credit after 1.4.2008, they will be liable to pay penalty under Section 76 of the Finance Act, 1994, as applicable during the relevant period. Demand of service tax of ₹ 644.69 lakhs on maintenance and repair of software service for the period 9.7.2004 to November 2005 and the demand of service tax of ₹ 135.16 lakhs for the period June 2007 to March 2008 are set aside - the appellants are required to pay applicable interest on the service tax demand of ₹ 135.16 lakhs from the date on which such service tax was due till the date of actual payment - appellants are required to pay penalty under Section 76 of the Finance Act, 1994 on the above amount of ₹ 135.16 lakhs. Other penalties imposed are however set aside. Appeal allowed in part.
Issues Involved:
1. Liability to pay service tax on software maintenance services for the period 9.7.2004 to 30.11.2005. 2. Availment and utilization of CENVAT credit for the period June 2007 to March 2008. 3. Time-barred demand and allegations of willful suppression or misstatement of facts. Issue-wise Detailed Analysis: 1. Liability to Pay Service Tax on Software Maintenance Services: The appellants, M/s. Mind Tree, were engaged in providing IT-related services, including maintenance and repair of software. The department observed that they received ?6320.52 lakhs for these services during the period 9.7.2004 to 30.11.2005, which were liable to service tax from 1.7.2003. However, maintenance of computer software was exempted from 21.8.2003 to 8.7.2004. The CBEC clarified that computer software was not taxable under service tax during this period. The Hon'ble Supreme Court in Tata Consultancy Services held that computer software was goods, leading the department to clarify that maintenance, repair, and servicing of software were liable to service tax from 9.7.2004. The appellants started paying service tax from 1.12.2005. The department demanded ?644.69 lakhs for the period from 9.7.2004. The Tribunal referenced the Karnataka High Court's decision in M/s. IBM (India) Pvt. Ltd. and the Madras High Court's decision in Kasturi and Sons Ltd., which held that software maintenance was exigible to service tax only from 1.6.2007. Consequently, the Tribunal held that the appellants were not required to pay service tax on software maintenance services for the period 9.7.2004 to 30.11.2005. 2. Availment and Utilization of CENVAT Credit: The appellants availed and utilized CENVAT credit up to 20% of the tax payable during the period June 2007 to March 2008 but failed to pay the balance 80% in cash, amounting to ?135.16 lakhs. They later utilized the balance 80% of the CENVAT credit after 1.4.2008. The Tribunal referred to the CBEC Circular F.No.137/72/2008-CX4 dated 21.11.2008, which clarified that accumulated credit could be utilized after 1.4.2008. The Tribunal also cited decisions in Idea Cellular Ltd. and DHL Logistics Pvt. Ltd. that supported the appellants' position. The Tribunal held that the appellants were entitled to utilize the balance 80% of the credit after 1.4.2008. However, the appellants were required to pay interest on the delayed payment of service tax and were liable to pay a penalty under Section 76 of the Finance Act, 1994. 3. Time-barred Demand and Allegations of Willful Suppression: The appellants contended that the demand was time-barred as there was no willful suppression or misstatement of facts with an intent to evade payment of duty. They argued that they were under a bona fide belief that software maintenance services were not liable to service tax and did not indicate the same in their returns. The Tribunal did not explicitly address this issue in the judgment, focusing instead on the substantive issues of service tax liability and CENVAT credit utilization. Conclusion: The Tribunal allowed the appeal partially, setting aside the demand of ?644.69 lakhs for software maintenance services and ?135.16 lakhs for the period June 2007 to March 2008. The appellants were required to pay applicable interest on the service tax demand of ?135.16 lakhs and a penalty under Section 76 of the Finance Act, 1994. Other penalties imposed were set aside. The order was pronounced in the Open Court on 22/02/2022.
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