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TMI Blog2018 (4) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... hs E/21604/2014 December 2012 to September 2013 OIO No. 21779/2014 dt. 30/03/2014 Rs. 4,71,3 enalty - Rs. 10 lakhs E/21021/2015 October 2013 to September 2014 OIO No. BLREXCUS-003-COM-25-14-15 dt. 3/02/2015 Rs. 5,54,0 enalty - Rs. 10 lakhs E/20555/2016 October 2013 to September 2014 OIO No.BLREXCUS-003- COM-30-15-16 dt. 28/01/2016 Rs. 4,13,0 enalty - Rs. 8 lakhs. 2. During the period under dispute, the appellant being a leading software service company in India, engaged in the development, implementation and services relating to the customised banking software known as "Finacle Universal Bnaking Software" '(Finacle' for short) this software was designed for the banking sector. For banking company which orders the same, the software is designed, developed and customised, implemented and installed for the particular bank. The appellants stated that once the software has been implemented for a particular banking company, the same cannot be used by any other banking company and is not suitable for any other sector. 3. The issue in all these appeals relates to demand of Central Excise duty on Finacle Software developed and customized for banks by the Appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical aspects arose thereon and the Appellant was paying Service Tax on ITSS and filing periodical Service Tax Returns as required under the Service lax law. 6. W.e.f. 1.7.2012, the Parliament amended the Finance Act 1994 to introduce Negative List of Services based levy in which the activity of development, design, programming, customization, adaptation, upgradation, enhancement and implementation of Information Technology Software was brought under the class of "declared service" as per section 66E(d). Further, in terms of section 66E(c) of the Act, the activity of temporary transfer or permitting the use of enjoyment of any intellectual property right was also construed as "declared service" 7. In the year 2008, even as the Appellant was discharging service tax liability, the DGCEI undertook investigation relating to excisability of Finacle and after doing so, issued the first show cause notice dt. 31.1.2011 demanding CE duty for the period March 2006-Dec 2009. Thereafter the Commissioner of Central Excise, Bangalore issued periodical notices for the period upto September, 2014, in which CE duty was proposed to be demanded. 8. The duty demands for Central Excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware as provision of service and have been paying service tax thereon. Accordingly, he argued that once the Department has considered the activity as supply of service, the same cannot be charged to Central Excise duty under Tariff Heading 8523. ii. The Finacle software cannot be considered as a packaged or canned software inasmuch as the same is specifically customised and developed for individual banks. iii, The Finacle software development, integration and implementation was not a manufacturing activity within the meaning of section 2(f) of the CEA, 1944. The definition in section 2(f) was not attracted and Finacle UBS did not satisfy the ingredients of being 'goods' as per section 2(d) of CEA; iv. Assuming without admitting that Finacle UBS development, design, installation, implementation, customization etc, was manufacture of goods, that would result in emergence of "customized software" since It was specifically designed and customized to a particular banking customer and thus exemption from payment of central CE duty vide notification No.6/2006CE was available as also under continuing notifications; v. The assessable value adopted for dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the claim of the appellant that Finacle software involves the activities of design, development, customisation, installation, integration and implementation for banks. Such software is not sold or capable of being sold as packaged/canned. Further it has been submitted that all the activities listed above are covered in the definition of Section 64(105) (zzze) of the Finance Act, 1994 which defines Informational Technology Software Service (ITSS) and hence the appellant is liable to pay only service tax on the said activity, which has been paid by them w.e.f. 16/05/2008 (the date of introduction of ITSS). 15. The adjudicating authority in the impugned order dt. 27/04/2012 (para 24 & 25) has discussed the nature of Finacle software. He has observed that Finacle software is sold in the form of Compact Disc or tape along with licence key. He has further recorded that even though Finacle software needs customisation for each bank, the same can be implemented by the customer himself provided the customer has the knowledge of the software. He has taken the view that Finacle is not a customised software developed for a specific user or a client but sold to many and has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant, we observe that in respect of Finacle software, there is an element of supply of software developed to meet the needs of a variety of users. Since Finacle software is not developed, ab initio, for supply to each and every customer, we are inclined to uphold the view taken by the adjudicating authority that such software falls within the category of packaged or canned software. Such software cannot be considered as customized software designed and developed for a specific user. 19. As explained in the above paragraphs, it cannot be denied that many of the activities undertaken by the appellant before and after supply off finacle software fall within the definition of ITSS under the Finance Act. The appellant has very strongly contended that the Department cannot charge both the service tax as well as excise duty on finacle software. It has further been argued that having charge service tax w.e.f. 16.05.2008, it is not open to the Department to levy excise duty, right from March, 2006. 20. The adjudicating authority in the Order-in-Original Noe 9/10/2012 para No. 25.4 of O-I-O dt. 27.04.2012 has observed that the appellant has been recovering the price of the Finacle softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e software in packaged form i.e. recovered in the form of licence fee. 23. Next we look at the period w.e.f. 16.05.2008. As observed in the previous paragraph, the appellant is required to pay excise duty on the value of the Finacle software i.e. amount recovered by way of software licence. But w.e.f. 16.05.2008 the appellant is liable to payment of service tax under the definition of ITSS. The definition of IT SS under Section 65(105) (zzze) includes the transfer of right to use as well as other services carried out by the appellant. Since the service tax has been paid by the appellant w.e.f. 16.05.2008, we are of the view that the appellant is required to make payment of excise duty on the value of the software but the same, if paid, can be allowed as cenvat credit of input services for discharge of service tax on ITSS. 24. Notification No. 22/2009 dt. 07.07.2009 was issued exempting from payment of Excise duty, the value attributable to the transfer of right to use such software for certain activities such as commercial exploitation including right to represent and sell. In the case of the appellant the software licence only allows the purchaser of the software to use the Finac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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