2024 (9) TMI 242 - AT - Service Tax

Liability of service tax - reverse charge mechanism - IT Service received from Microsoft for which payments were made by appellant to Microsoft - demand has been raised against the appellant alleging that Microsoft has sold the software to the appellant - Whether Microsoft has provided any IT Services to the appellant by which the appellant is liable to pay service tax under reverse charge mechanism? - HELD THAT - There are no document which shows that Microsoft has sold the software to the appellant. As per the Microsoft Channel Agreement entered by Microsoft and appellant, the appellant is authorised as a Large Account Reseller. The Department has been carried away by the word Reseller to reach the conclusion that the software has been sold by Microsoft to the appellant who is reselling the software to its end customers. The Agreement does not show that the Microsoft has transferred the title and ownership or right to use of software to the appellant. It is pertinent to note that the demand raised is on reverse charge basis construing the appellant to be a deemed service provider. There is nothing to show that the appellant has downloaded the software. Even by the case of the Department as discussed by the Adjudicating Authority in para 14, after a customer places purchase order for software, the same is provided by Microsoft to the end customer. The appellant facilitates procurement of order, issuance of invoice and collection of payments. They also deliver the PIN given by Microsoft to the customer after payment formalities - no consideration is paid by the appellant as value of the software to Microsoft in the form consideration for sale or right to use. Again, the invoices issued by Microsoft mentions the name of the customer and not appellant. This itself is clear indication that Microsoft is not selling or transferring right to use the software to Wipro but, selling it directly to customer and the appellant only facilitates the placing of order, supply of software and collection of payment. Reliance placed upon the document furnished by the appellant before the Customs Authorities - This document is for compliance of FEMA Regulations in regard to foreign currency remittances. The document is reproduced here. Merely because, it is stated in the document that the right to use IT Services is transferred, it cannot be said that such right has been transferred to the appellant. Unless the document entered between Microsoft and appellant shows that software is sold or the right to use is transferred to the appellant, the allegation of the Department is not tenable. However, it is found that all these require thorough scrutiny. The Adjudicating Authority has not taken into consideration the pleas put forward by appellant. Instead has relied on the software Microsoft Volume Licensing Reference guide. It is stated that the software license provides the right to run a Microsoft software product. It requires to be examined whether these licenses issued by Microsoft are used by appellant. These issues are adjustment of service tax, credit availed, etc. On the basis of our finding in the first issue, the other issues have to be verified and reconsidered by the Adjudicating Authority. The Adjudicating Authority is directed to reconsider all issues afresh. The matter is remanded to the Adjudicating Authority for denovo consideration - appeal allowed by way of remand.

Issues Involved:
1. Liability to pay service tax under reverse charge mechanism for IT Services received from Microsoft.
2. Short payment of service tax on IT Services provided to SEZ units.
3. Eligibility of input service tax credit.
4. Adjustment of service tax paid.
5. Credit availed on RMA invoices.
6. Calculation of service tax liability.
7. Non-payment of service tax on IT Services received from Microsoft for domestic customers.
8. Transfer of CENVAT credit to another unit.

Issue-wise Detailed Analysis:

1. Liability to pay service tax under reverse charge mechanism for IT Services received from Microsoft:
The Department alleged that the appellant received IT Services from Microsoft and was liable to pay service tax on reverse charge basis. The appellant argued that they only facilitated the sale of software licenses from Microsoft to end customers and did not receive any IT Services themselves. The Tribunal found that the Microsoft Channel Agreement did not show any transfer of title or right to use the software to the appellant. Payments made by the appellant to Microsoft were collected from end customers and transmitted to Microsoft, not as consideration for any service received. The Tribunal concluded that there was no service falling under the definition of ITSS provided by Microsoft to the appellant and remanded the issue for further scrutiny.

2. Short payment of service tax on IT Services provided to SEZ units:
The Department claimed that the appellant failed to pay service tax on IT Services received from Microsoft and provided to SEZ units. The appellant contended that they were not liable to pay service tax as the services were exempt under Section 26 of the SEZ Act. The Tribunal noted that the appellant had adjusted the service tax paid for SEZ units towards their liability for domestic transactions. The Tribunal directed the Adjudicating Authority to reconsider the issue in light of the findings on the first issue.

3. Eligibility of input service tax credit:
The Department alleged that the appellant availed ineligible input service tax credit for services received from Microsoft. The appellant argued that if the first issue was decided in their favor, the credit availed would be legal and proper. The Tribunal directed the Adjudicating Authority to verify and reconsider the eligibility of input service tax credit based on the findings on the first issue.

4. Adjustment of service tax paid:
The Department claimed that the appellant wrongfully adjusted the service tax paid for SEZ units towards their liability for domestic transactions. The appellant contended that they had paid service tax under reverse charge mechanism on certain IT Services after 16.05.2008, which they were not liable to pay, and adjusted the said tax towards subsequent payments. The Tribunal directed the Adjudicating Authority to reconsider the issue based on the findings on the first issue.

5. Credit availed on RMA invoices:
The Department alleged that the appellant availed ineligible credit on RMA invoices. The appellant argued that they had paid the service tax and therefore, the credit availed was legal and proper. The Tribunal directed the Adjudicating Authority to verify and reconsider the issue based on the findings on the first issue.

6. Calculation of service tax liability:
The Department claimed that the appellant short-paid service tax by calculating the liability only on a partial amount paid to Microsoft. The appellant contended that they were not liable to pay any service tax under reverse charge basis as there were no services provided by Microsoft. The Tribunal directed the Adjudicating Authority to verify and reconsider the issue based on the findings on the first issue.

7. Non-payment of service tax on IT Services received from Microsoft for domestic customers:
The Department alleged that the appellant failed to pay service tax on IT Services received from Microsoft and provided to domestic customers. The appellant argued that the same arguments applied as in the first issue. The Tribunal directed the Adjudicating Authority to verify and reconsider the issue based on the findings on the first issue.

8. Transfer of CENVAT credit to another unit:
The Department claimed that the appellant unlawfully transferred CENVAT credit to their Bangalore unit. The appellant argued that the transfer was done after the closure of the trading unit at Pondicherry. The Tribunal directed the Adjudicating Authority to verify and reconsider the issue based on the findings on the first issue.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for denovo consideration of all issues. The appeal was allowed by way of remand.

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