2024 (11) TMI 665 - AT - Service Tax

Service tax liability on sale of imported tally software - invoking extended period of limitation - Appellant is the distributor for marketing and installation of tally software on behalf of seller hold the intellectual property right and copy rights; product alone is transferred to the Appellant. Demand of duty by invoking the extended period of limitation from 16.05.2008 to 30.09.2008 - HELD THAT - Once penalty imposed by Adjudication authority under Section 78 was dropped by the Appellate authority on the ground that there does not seems to be the presence of guilty mind warranting penalty under Section 78 of the Finance Act, 1994 and when said finding has not been challenged by the revenue, following the decision of the Tribunal in the matter of M/s Frankie Fabric India Ltd 2017 (2) TMI 482 - CESTAT MUMBAI demand of Service Tax by invoking the extended period of limitation from 16.05.2008 to 30.09.2008, is not sustainable. Service tax demand - The software imported and sold by the Appellant is import and sale of goods and is not exigible to service tax. Goods imported and sold in downloaded form through Internet , as per the judgment of the Hon ble Supreme Court in the case of M/s Tata Consultancy Services 2004 (11) TMI 11 - SUPREME COURT (LB) the moment copies are made and marketed, it became goods which are subject to sales tax. Demand against upgradation of software , as per the decision of M/s Quick Heal Technologies Ltd 2022 (8) TMI 283 - SUPREME COURT once lumpsum has been charged for the sale of CD as involved in present appeal and sale tax has been paid thereon, Revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that updates are being provided. Thus, it is well settled that once Appellant had paid VAT on the sale of goods, service tax cannot be demanded on such sale of goods.

Issues Involved:

1. Service tax liability on the sale of imported tally software.
2. Classification of the transaction as sale of goods versus provision of services.
3. Applicability of service tax on software upgrades.
4. Invocation of the extended period of limitation for service tax demand.
5. Eligibility for benefits under Notification No. 12/2003-ST and CENVAT credit.

Detailed Analysis:

1. Service Tax Liability on Sale of Imported Tally Software:

The primary issue in this appeal was whether the appellant's activities related to the sale of imported tally software constituted a taxable service under the category of Information Technology Software Services. The appellant argued that their activity was purely the sale of software, evidenced by payment of VAT/CST and customs duties. The appellant relied on several judgments, including the Supreme Court's decision in Tata Consultancy Services, which held that software, once marketed, becomes "goods" and is subject to sales tax, not service tax. The tribunal agreed with the appellant, concluding that the software sold, whether in physical or downloaded form, qualified as goods and was not liable to service tax.

2. Classification of the Transaction as Sale of Goods Versus Provision of Services:

The appellant contended that the software transactions should be classified as sales of goods rather than services. The tribunal examined precedents, including the Tata Consultancy Services case, which emphasized that software, when sold, possesses attributes of goods, such as being capable of being bought, sold, transferred, and stored. The tribunal affirmed that the software in question met these criteria, thereby classifying the transactions as sales of goods. Consequently, the appellant was not liable for service tax on these transactions.

3. Applicability of Service Tax on Software Upgrades:

The tribunal addressed the demand for service tax on software upgrades, referencing the Supreme Court's decision in CST vs. Quick Heal Technologies Ltd. It was determined that once a lump sum charge for the sale of software (in this case, on a CD) was levied and sales tax paid, service tax could not be subsequently imposed on the same transaction for providing updates. The tribunal upheld that the upgrades were part of the sale of goods, and thus, service tax was not applicable.

4. Invocation of the Extended Period of Limitation for Service Tax Demand:

The tribunal examined the invocation of the extended period of limitation for the service tax demand. The appellant argued that they had communicated transparently with the tax authorities, and there was no suppression of facts. The tribunal noted that the penalty under Section 78 had been dropped due to the absence of a guilty mind, and the revenue had not challenged this finding. Citing the decision in Frankie Fabric India Ltd, the tribunal concluded that the extended period of limitation was not justified, rendering the service tax demand for the extended period unsustainable.

5. Eligibility for Benefits under Notification No. 12/2003-ST and CENVAT Credit:

The appellant claimed entitlement to benefits under Notification No. 12/2003-ST, which allows exclusion of the value of goods and materials for service tax calculation. Additionally, they argued for CENVAT credit eligibility, asserting that service tax payments and credit utilization would result in revenue neutrality. The tribunal acknowledged these claims but primarily focused on the classification of the transactions as sales of goods, which negated the need for service tax and thus the applicability of these benefits.

Conclusion:

The tribunal set aside the impugned order, allowing the appeal and granting consequential relief to the appellant. The tribunal's decision was based on the classification of the software transactions as sales of goods, exempting them from service tax, and the improper invocation of the extended period of limitation.

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