9911796707
TMI Blog2018 (9) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... Table 1 Show Cause Notices adjudicated by the impugned order Show Cause Notice Date Period Demand under Taxable Service 19/10/2009 1.4.2004 to 31.3.2009 Maintenance & Repair 20/10/2010 1.4.2009 to 31.3.2010 Information Technology Software 21/10/2011 1.4.2010 to 31.3.2011 Information Technology Software 22/10/2012 1.4.2011 to 31.3.2012 Information Technology Software 2.2 While remanding the matter back the Tribunal has in its earlier order observed as follows:- "4. We have considered the submissions made by both the sides. We have also perused the impugned order. From the impugned order, it does not come out clearly how the Service Tax liability has been computed. If the appellant has purchased from third parties and sold the same on payment of VAT and also supplied hardware on payment of VAT, the same would not be liable to service tax. The liability to service tax would arise only in respect of software which the appellant has developed as per customer's specifications and supplied to their customers. Therefore, there is a need to go through the agreements entered into with the clients, bills raised for the services rendered and the goods supplied and the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner has confirmed the demand under the category of "Intellectual Property Right" services up till 15.05.2008 and from 16.05.2008 under the category of Information Technology Software Services. Since the adjudication order has in case of this show cause notice demanded the service tax under the category which were never in dispute in Show Cause Notice, the order is bad in law. [Mahakoshal Beverages Pvt Ltd. Vs, CCE (2006) 6 STR 148 (T-Bang)] & [Glass Fibres vs CCE (2010) 18 STR 726 (T-Bang)] (b) The impugned order has gone beyond the scope and directions of the Tribunal in remand order dated 14.01.2013 for demand of service tax on sale of software and hardware. Hence, to the extent of Rs. 42,57,55,464/- for the period 01.04.2004 to 31.03.2012 is unsustainable. The tribunal earlier decision to this effect as it has not been challenged hence binding on the revenue authorities [CCE Vs Costa & Co Pvt Ltd (2015) 321 ELT 475 (T-Mum)], {Triveni Rubber Vs CCE (2017) 346 ELT 41 (ALL)] & [CCE Vs Raj Leather Clothes Industries Pvt Ltd (2005) 186 ELT 332 (T-DEL] & [CBEC Circular No 81/2/2005 dated 7.10.2005] (c) Show-cause notice No.2nd , 3rd and 4th (period 01.04.2009 to 31.3.2012) do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CE [2018 TIOL 206 CESTAT MUM} & DHL Lemuir Logistics Pvt. Ltd. Vs CCE 2017 (47) STR 309 (T-Mum)] (h) In respect of Octroi charges in service tax is not demandable as these are essentially in relation to the sale of hardware. Octroi is a tax paid to bring goods into a state and is not in the nature of consideration for any services and hence not liable to tax. (i) Services rendered in Jammu & Kashmir are rendered outside the taxable territory and hence are not liable to service tax. 6. Replying to the contentions of the appellant learned D.R. made submissions as follows:- (a) In respect of show-cause notice No.1, though the show-cause notice has been issued under the category of 'management, maintenance and repair service, demand has been confirmed under 'Intellectual Property Services' upto 15.05.2008 and thereafter under 'Information Technology Services'., and the Appellant contention for challenging the said demand is on the basis that they were not put to notice in this regards. (b) The said demand has been confirmed under the said categories after going through the "Full Use Program Distribution Agreement dated 17th May 2010 with Oracle India" as per which appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and customization of software is Rs. 51.37 Crores. As per them, sale of software is not provision of service. Further customization of software as per client's specification is not "maintenance or repair service". Software development (including up-gradation, implementation etc) has been included under ITSS wef 16.05.2008. (g) As per Circular dated 07.10.2005 and 07.03.2006, software being goods, any service in relation to maintenance, repair or servicing of software will be liable under 'Maintenance or repair service". (h) The decision of Hon'ble Supreme Court in the case of Tata Consultancy Services - 2004 (174) ELT 22 (SC) is not applicable in the present case as in that case the issue was whether canned software can be termed as goods and assessable to Sales Tax. In para 16 it referred to earlier decision as per which properties which are capable of being abstracted, consumed and used and/ or transmitted, transferred, delivered, stored or possessed are "goods" for the purpose of sales tax. In para 24 relying on the definition of goods in Article 366(12) of the Constitution of India it observed that copyright in software may remain with originator, but the moment copi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up of material and service portion was disputed in order and the affidavit filed before Court. It cannot be applied in present case. (n) As appellant did not seek any clarification from department and there was failure to disclose position in ST-3 returns, there was suppression and hence extended period has been correctly invoked. For which reliance has been placed on CCE v. Reliant Advertising [2013 (31) STR 166 (Tri-Del) and Vodafone Digilink Vs CCE [2013 (29) STR 229 (Raj)]. (o) In case of demand of Service Tax under Section 73, it is not required to prove that the nonpayment of tax was with intent to evade as required under Central Excise Act, 1944 as held in Touraids Travels Vs CCE [2014 (35) STR 235 (ALL)] (p) Further payment of VAT is not relevant factor for determining the liability to service tax as has been held by the Apex Court in case of IDEA Mobile. [2011 (23) STR 433 (SC)] (q) It was also submitted that the sale of hardware as shown is not per se sale of hardware is nothing but sale of complete software solution to the issuance being passed by the clients its sale of hardware has to be seen in conjunction with the entire contract agreement and then it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax from 16.05.2008, they have paid the service tax in respect of these services with effect from that date. vi. Apex Court decision in case of Tata Consultancy Services [2004 (178) ELT 22 (SC)] is relevant both prior to and after 16.05.2008 and the sale of copy of computer programme would still be sale of goods and not services. vii. It is intention of the parties to sell a copy of the software so that the property in the copy passes to the buyer and hence it is sale. viii. In view of the decision of Karnataka High Court in case of State of Karnataka Vs IBM India [2015-TIOL2298-HC-KAR-VAT], and Infosys Ltd vs Dee Commissioner of Commercial Taxes [2015-TIOL-2106-HC-KAR-VAT], a. sale of Third Party Standardized Software and sale of In-house Developed Standardized Software, will be sale liable to VAT; b. Service Tax will be payable on pure service contract, software development services on which service tax is paid. ix. By applying the principles laid down by the Bombay High Court in case Mahyco Monsanto Biotech (India) Pvt. Ltd. vs UOI [2011 (44) STR 161 (Bom)], since the copy of software is exclusively given to the customer, and he is free to use it, not to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice'. Only after going through all these documents, correct service tax determination was to be done and matter was remanded for taking into account of documentary evidences which would submit in support of their claim of having discharged of service tax liability. While passing the order, Commissioner has done the same. He has considered looking into agreements and has concluded what he deemed fit in respect of leviability of service tax. The remand order does not conclude anything in respect of the nature of the software supplied or to say that these could not have been leviable to service tax. Accordingly, the order of Commissioner cannot be faulted on this count. 10.2 In para 18 of his order, Commissioner had examined the agreement entered between the appellant and M/s Oracle on 17.05.2010. In para 20(ii), he had examined the purchase order from M/s Shriram, bearing No. POETG/SOF/SI/00168/0-10 dated 25.11.2009 and other documents supplied by the noticee during the course of adjudicating proceeding. After considering the said agreement, the Commissioner has in para 23 and 24 concluded as follows:- "23. The software programme developed by software developers like Oracle consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument on merits advanced by the appellant is with regards to the decision of the Hon'ble Apex Court in the case of Tata Consultancy Services. Relying on the said decision they have argued that the third party software supplied by them are nothing but sale of copy righted article and hence sale of goods leviable to VAT hence cannot be leviable to service tax. There is no law which provides that levy of VAT bars to levy of service tax. On the contrary if authority to levy of service tax on a particular transaction can be traced back then no other levy cannot bar such a levy. It is the context that the decision of Madras High Court referred above needs to be examined. It is the submission of the party and is reproduced in reference to this argument:- Sl.No. Questions Held 1. Whether 'software' is 'goods'? Software is goods. 2. When a copy of it is supplied to any end customer under and "End User License Agreement: - is it a sale or a service Whether the transaction would amount to sale or service would depend upon the individual transaction. 3. Whether the Parliament has the legislative competency to bring in the amended provisions of Section 65 (105)(zzzze) by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -6100003848, INV-MUM-6100003850, INV-MUM-6100003852, INV-MUM-6100003857, INV-MUM-61000072, INV-MUM-6100005281-84 and INV-MUM-6100005857 the Noticee have supplied Oracle Standard Edition software - 5 user Licenses. * Vide Invoice No. INV-MUM-6111001979 dated 22.06.2010, one server license is sold to M/s. J.B. Chemicals & Pharmaceuticals Ltd. * Vide Invoice No. INV-BGL-6111002209 dated 25.06.2010, DMS Software service based with 20 concurrent License Datascan. online is supplied to Bangalore Development Authority. * One Auto Deal software License is supplied to M/s. Nissan Motor India Pvt. Ltd. vide Invoice No. INV-MUM6111003204 dated 27.07.2010. * One Orion ERP Software License is supplied to NET 4 India Ltd. vide invoice No. INV-MUM-6111004830 dated 13.09.2010 * One Auto Deal software License is supplied to M/s. Nissan Motor India Pvt. Ltd. vide Invoice No. INV-MUM6111009474 dated 29.03.2011. * An amount of Rs. 1,40,000/- is billed vide invoice No. INVMUM-6110002109 dated 28.07.2009 towards software License, implementation charges and packaging cost for Auto Deal." 10.6 After examining the context of these agreements, Commissioner concluded that the transaction underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customers, remained with the Noticee only. Thus, even in respect of the supply of software developed inhouse or customized software, the services provided by the Noticee are classifiable under the category of the 'intellectual property services'. 46. Information Technology Software Services, defined under Section 65(53a) of the Finance Act, 1994 was introduced with effect from 16.05.2008. The taxable service is defined under Section 64(105)(zzzze) ibid, which includes providing the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of an inclusion in other information technology software products. The taxable services also includes providing the right to use information technology supplied electronically. The CBEC too has clarified vide Circular DOF No. 334/1/2008-TRU, dated 29.02.2008 read with DOF No. 334/13/2009-TRU, dated 06.07.2009 that the Information Technology Software services includes providing the right to use IT software for commercial exploitation including right to reproduce, distribute and sell, softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Service was not in existence. The relevant portion of the CESTAT's order are reproduced below- "Para 12. Ld. Counsel has given a lot of emphasis and cited certain judgments to argue the point that once a new entry is introduced covering a particular activity without amending the earlier entry, it cannot be said that earlier entry covered the subsequently introduced entry. We are of the view that this proposition may be true in certain situations while in other situations, this may not be true. After the introduction of Finance Act, 1994, practically every year new services were introduced in the Service Tax net. The introduction of new service did not bear any specific pattern or coverage to particular sector. In central Excise Tariff as also Customs Tariff, the classification is based upon various entries in the Service Tax, it is not unusual to find that a particular activity service may get covered by more than one entry/classification. In fact, Section 65A of the Finance Act, 1994 recognizes this fact. The said Section is reproduced below:- 65. Classification of taxable services (1) For the purpose of this Chapter, classification of taxable services shall be determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auxiliary Service prior to that date. Share Transfer Agents are a separate category and they do the work of their own and registered with SEBI and it is in this context, the Tribunal held that this cannot be covered under Business Auxiliary Service and made certain observations. Similarly in the case of CCE vs. Trumac Engg. Co. Pvt. Ltd. reported in 2008 (10) S.T.R. 148 (Tri. Ahmd.) the issue was between the Consulting Engineering Service and Intellectual property service w.e.f. 10.09.2004. The fees and royalty paid for technical knowhow was not to be covered under Consulting Engineer Service and in this context the Tribunal held that services are chargeable under Intellectual Property Service with effect from 10.09.2004 and are not covered under Consulting Engineer services prior to that date and observations are made in that context. Similarly, in the case of Glaxo Smithkline Pharmaceuticals Ltd. vs. CCE, Mumbai IV reported in 2005 (188) ELT 171 (Tri. Mum) the issue was whether the activities which are in the nature of executor services would be covered under Management Consultancy services. The executor services were held to be not covered under Management Consultancy services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e category of 'Management, Maintenance or Repair Services' for the period from April 2004 to 16.05.2008. the classification rule says that the classification of a service should be done under the head which is more specific, viz., temporary transfer of right to use the software are found to be more appropriately classifiable under the category ' Intellectual Property Services' and with effect from 16.05.2008 are specifically covered under the category 'Information Technology Software services'. As regards the management, maintenance and repair services of computer hardware/ software provided by the Noticee either under the Annual Maintenance Contract (AMC) or otherwise, there is no dispute that the same are covered under the category of 'Management, Maintenance or repair services' only, which are defined under Section 65(64) of the Finance Act, 1994 and taxable under Section 65(105)(zzg) of the Finance Act, 1994, during the entire period of demand. 53. From the foregoing it is evident that the services under consideration provided by the Noticee, are classifiable under 'Intellectual Property Services' prior to 16.05.2008 and under 'Information Technology Software Services' with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising from E-Commerce" which was adopted by the OECD Committee on Fiscal Affairs on 7 November 2002, consequently leading to another report titled "The 2002 Update to the Model Tax Convention" adopted by OECD Council on 28 January 2003, which led to the paragraphs 11.1, 11.2 11.3, 11.5, 11.6, 17.1, 17.2, 17.3 and 17.4 of the OECD Commentary. UN History 4. Article 12, paragraph 3, of the UN Model reproduces Article 12, paragraph 2, of the OECD Model but eliminates equipment rental from this Article. Moreover, paragraph 3 of Article 12 includes payments for tapes and royalties which are not included in the corresponding provision of the OECD Model. The relevant portions of the OECD Commentary and Committee comments are attached in Annex I. 5. At the 11th session of the Committee in 2015, a Subcommittee was formed to investigate the issue of software-related payments under Article 12 of the UN Model. The Subcommittee mandate was to consider and report on possible improvements to both the UN Model and Commentary. 6. The issue of taxation of royalties under Article 12 was initially scheduled for the 12th session of the committee, but was deferred until the 14th session, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to perform * services which may require the use, by that supplier, of special knowledge, skill and expertise but not the transfer of such special knowledge, skill or expertise to the other party. In most cases involving the supply of know-how, there would generally be very little * more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve a very much greater level of expenditure by the supplier in order to perform his contractual obligations. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to subcontractors for the performance of similar services. 11.4 Examples of payments which should therefore not be considered to be received as consideration for the provision of know-how but, rather, for the provision of services, include: payments obtained as consideration for after-sales service, * payments for services rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x purposes. Payments in these types of transactions would be dealt with as commercial income in accordance with Article 7. 14.1 The method of transferring the computer program to the transferee is not relevant. For example, it does not matter whether the transferee acquires a computer disk containing a copy of the program or directly receives a copy on the hard disk of her computer via a modem connection. It is also of no relevance that there may be restrictions on the use to which the transferee can put the software. 14.2 The ease of reproducing computer programs has resulted in distribution arrangements in which the transferee obtains rights to make multiple copies of the program for operation only within its own business. Such arrangements are commonly referred to as "site licenses", "enterprise licenses", or "network licenses". Although these arrangements permit the making of multiple copies of the program, such rights are generally limited to those necessary for the purpose of enabling the operation of the program on the licensee's computers or network, and reproduction for any other purpose is not permitted under the license. Payments under such arrangements will in mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the use of the rights. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in installments or, in the view of most countries, by the fact that the payments are related to a contingency. 17. Software payments may be made under mixed contracts. Examples of such contracts include sales of computer hardware with built-in software and concessions of the right to use software combined with the provision of services. The methods set out in paragraph 11 above for dealing with similar problems in relation to patent royalties and knowhow are equally applicable to computer software. Where necessary the total amount of the consideration payable under a contract should be broken down on the basis of the information contained in the contract or by means of a reasonable apportionment with the appropriate tax treatment being applied to each apportioned part. 17.1 The principles expressed above as regards software payments are also applicable as regards transactions concerning other types of digital products such as images, sounds or text. The development of electronic commerce has multiplied the numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roach of commissioner while dealing with the issues is in accordance with the international practices of treatment of the software related transactions. Thus the order of the Commissioner holding that these services are classifiable under the category of 'Information Technology Software Services' after 16.05.2008 and prior to that under the category of 'Intellectual Proper Services' cannot be faulted with. 10.10 In respect of sale of hardware, party has contended that these sale of hardware is nothing but sale of goods and hence they should not be leviable to service tax. After examining the invoices and the purchase orders the Commissioner in para 34 onwards have dealt with the issue. In paragraphs 36 and 37 he has observed as follows:- "36. The installation of new computer system or its upgradation/modification normally involves advice and assistance in selection of hardware and software, purchase of hardware and software, development of software as per the specifications are requirements, modification of software to suit the requirement, etc. Such jobs are comprehensive in nature. It is seen from the records submitted by the Noticee that they have supplied large number of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware is in relation to the provision of the services, the issue is in reference to valuation of the said services and not the classification of such hardware as services. That being so the value of hardware provided in terms of Section 67 of the Finance Act, 1994 needs to be added to the value of the services provided by the appellant. Here also the contention of the appellant based on the fact that they have paid sales tax / VAT on the said would not impact the liability for payment of service tax. Hon'ble Supreme Court in the case of Idea Mobile Communication Ltd. v. CCE & Cus. Cochin - 2011 (23) STR 433 has held in para 19, which is reproduced below:- "19. There cannot be any dispute to the aforesaid position as the appellant itself subsequently has been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) (v) Marubeni India Pvt. Ltd v/s CST (2016) 45 STR 549 (TriDel) (vi) Warner Hindustan Ltd v/s CCE (1999) 113 ELT 24 (S.C.) 10.14 Relying on the above cases, the party had submitted that the demand cannot be made ahead which is not proposed in the show-cause notice. There is no dispute in that reference to the proposition made. It is settled principle in law to proceed against any person, the basic requirement is that he should be put to sufficient notice about his contravention and allowed to make proper defense. Since the first show cause notice dated 19.10.2009 has been issued demanding service tax under the category of "Management, Maintenance & Repair Service", the confirmation of demand under any other category, namely "Intellectual Property Right Services" for the period prior to 16.05.2008 cannot be justified and the order to that extent is definitely not maintainable. 10.15 In the present case in three show-cause notices in respect of the same issue were proposed under Information Technology Software services and the party was having sufficient notice to answer the same under the said head in respect of the 1st show-cause notice dated 19.10.2009. When there is oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence to show that the services provided by them or only or partly consumed within the SEZ or outside. Thus, there is no dispute about the fact that said exemption or not available to the appellant during the relevant period. Since Commissioner has not considered the matter on this aspect the issue needs to be remanded back to him for consideration of the exemption in respect of services supplied to SEZ unit/ developer. 10.17 Octroi Charges are in nature of levy for transportation of good, they cannot be said to be the part of value of taxable services provided by the appellants. Since this issue has not been considered by the Commissioner, the matter should be remanded back to him for reconsideration of the evidences that will be produced by the appellants to establish that these amounts were paid towards octroi. 10.18 Services rendered in J & K., certain invoices have been pointed that these services have been rendered in J & K. As per Finance Act, 1994, service tax is not payable in respect of the services rendered there. Accordingly, the demand in respect of such services cannot be confirmed. Commissioner should accordingly requantify the demand after factoring in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be shown that party has acted deliberately in defiance of law. Case of discharging the tax liability which is confirmed later on by way of notice and adjudication. In the present case the penalty imposed are mandatory penalties provided in law, they are to be held as civil liability accordingly. Reliance on Section 80 would be of no held in this case. Hon'ble Kerala High Court in the case of Commissioner of Central Excise vs. Krishna Poduval - 2006 (1) STR 185 (Ker.) has held as reproduced below:- 11. The penalty imposable under S. 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of S. 68 and the Rules made thereunder, whereas S. 78 relates to penalty for suppression of the value of taxable service. Of course these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even withou ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
