9911796707
TMI Blog2024 (9) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement (Microsoft Channel Agreement) with Microsoft as a Large Account Reseller under which Microsoft has authorised appellant to distribute / sell Microsoft Licences to domestic customers. The Agreement provides for Microsoft Volume Licensing Programme-Select and Enterprise Scheme . As per the said Scheme, the end customers having huge number of computers, say 200-250 can obtain the License from Microsoft for the right to use the software through the Large Account Re-seller instead of obtaining the software in physical form. It is the case of the Department, that as per the Agreement, Microsoft would sell Software Licence (i.e., Title for the right to use the Microsoft software) for distribution / sale to the appellant and issue invoice and receive the payment from the appellant in foreign currency. The appellant in turn would distribute / sell the Software Licences to end customers. The appellant would also issue invoices to the end customers who are SEZ as well as domestic customers. Thus, Microsoft has authorized the appellant to distribute / sell the Software Licences in a specific territory to the end customers. 1.4 The Department was of the view that Microsoft has provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid under GAR-7 challan as per the amount arrived at in the work sheet. The amount so paid under GAR-7 is availed as input service credit. vi. Likewise, for the Outward IT Service provided by M/s. Wipro (i.e. sale of Software Licenses to domestic customers), invoices are issued on the end customer by M/s. Wipro. Service Tax is paid on the said invoice prices after the payment is received from End Customer. The credit availed on the import of service is used for payment of Service Tax on the outward service and the balance is paid in cash. vii. The End-Customer can directly download the software from the Microsoft Portal after receiving the licenses through invoices from M/s. Wipro. 1.5 The evidences collected by Department to conclude that appellant has received IT Services from Microsoft as alleged in the Show Cause Notice is as under:- 6. Evidence in Support of Receipt of IT Services by M/s. WIPRO The following facts are relevant in this regard: - i) The Microsoft Volume licensing Reference Guide available on the Microsoft website clearly specifies that the software acquired through Microsoft volume licensing scheme is a software license only and it provides the right to run / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soft (outside India) and intended for distribution / sale to SEZ units for the period from 16.05.2008 to 15.09.2009. 1.8.3 From the records, it was noticed that M/s. Cognizant Technology Solutions India Private Limited, a DTA, Non-SEZ customer had placed purchase order on appellant as purchase order dated 20.02.2008 for various software licenses for total value of Rs.58,66,99,823/-. The appellant in turn had placed an order for the software licence to Microsoft, Singapore. The invoice issued by Microsoft is dated 22.02.2008 which is prior to 16.05.2008. These licences were received in appellants Puducherry unit on 18.07.2008. Appellant had not paid service tax on the invoice dated 22.02.2008, but had adjusted the service tax paid for IT Services received and intended for SEZ towards the invoice of Cognizant Technologies. Such adjustment is not proper. As per the service tax details for the month of September 2008, January 2009, February 2009 and March 2009, it was noted that the appellant had paid service tax in respect of invoices issued to Aditi Technologies, Macmillan Publishing, Cognizant Technology Solutions, Metlife Global Operations Support, Novelis India Infotech and Sasken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availed was also utilised for payment of service tax on output services. Rule 6(1) read with Rule 2(e) of the CENVAT Credit Rules, 2004, says that credit is not eligible for exempted services. In the present case, IT Services provided by appellant to above mentioned SEZ units are completely exempted from payment of service tax as per the Notifications. In such circumstances, the input service tax credit availed by the appellant to the tune of Rs.6,24,50,068/- is ineligible. 1.10 On verification of their output services and service tax liability statement, it was noted that appellant received IT Services from Microsoft, Singapore which were for their own use in Wipro Technologies and Wipro BPO divisions, which are integral part of the appellant company. The appellant ought to have paid service tax under reverse charge basis for the IT Services received from Microsoft, Singapore for their own use. They have not discharged service tax on IT Services received by them meant for their own divisions located in DTA, there is a short payment of service tax on Rs.1,94,52,275/- for this reason. 1.11 On verification pertaining to output service and various purchase orders, it was noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax paid by them and reflected it in ST-3 returns for the month of December 2008. 1.15 After availing such credit, the appellant has used such credit for payment / adjustment of service tax liability for import of services for the month of January 2009 which is in violation of law. The appellant has thus short paid service tax for the month of January 2009 to the tune of Rs.17,99,073/-. 1.16 Further, it was noticed that appellant has been preparing among their service tax liability statements for each month based on the payments made to Microsoft, Singapore. However, on reconciliation of Microsoft ledger and monthly statements, the appellant on two occasions has failed to consider the entire amount paid to Microsoft. The appellant has taken into consideration only part of the amount for the purpose of calculating the service tax liability under reverse charge basis. By resorting to this method, the appellant has short paid service tax to the tune of Rs.17,17,672/-. 1.17 Further, on verification of invoices, it was found that appellant failed to pay service tax on IT Services received from Microsoft for their domestic and non-SEZ customer viz., M/s. Biocon Limited and M/s. Cogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised alleging that the appellant has received IT Service from Microsoft for which payments were made by appellant to Microsoft and such payments being consideration paid by appellant is liable to pay service tax on such consideration on reverse charge basis, as a service recipient. It is alleged in Show Cause Notice that Microsoft has given the appellant, the right to sell software (Licence) and this activity falls within the definition of Information Technology Software Services. 2.3 The definition of Information Technology Services introduced w.e.f. 16.05.2008 was referred to by the Ld. Counsel and reads as under:- Section 65(105)(zzzze) to any person, by any other person in relation to information technology software Including,- (i) development of information technology software, (ii) study, analysis, design and programming of information technology software, (iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software, (iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom a Customer outside the Territory. In addition, Company may not accept orders or receive payment for Licenced Software or Software Assurance (but may accept orders for Documentation Components) from any Enterprise (Direct) Agreement Customer that has an Enrolment directly with Microsoft. 6. Pricing, purchase orders, purchase order revisions, payment. a. Pricing. Microsoft's prices for all Customer orders of Licensed Software and Software Assurance are available at the Channel Partner Website or, if applicable, in a channel price sheat Microsoft gives Company in connection with a specific Customer's Enterprise (Indirect) Agreement Enrollment. b. Purchase order submission. Company will submit purchase orders to Microsoft on a regular basis. Details regarding purchase order submission are outlined in the Guide for Large Account Resellers. c. Purchase order revisions. Company may submit revisions to its Customer purchase orders. Microsoft may require detailed back-up for any purchase order revision. Additional details regarding purchase order revisions. Additional details regarding purchase order revisions are outlined in the Guide for Large Account Resellers. d. Payment. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the requirements of the customer, an order is placed on the appellant who in turn places and order on Microsoft. iii. Confirmation email from Microsoft is forwarded to the Customer and invoice is raised by the Appellant. Customer is provided access to a secure Microsoft website from which they can download the licenses software. iv. License is directly provided to and used by the end customer. The license agreement is directly between the customer and Microsoft. There is no transfer of license first to the Appellant and thereafter to the customer; there is no retransfer of license. Appellant only facilitates the placing of the Customer's order requirements with Microsoft. v. The secure Microsoft website allows only the end customer to access and download through the use of an access code. The Appellant is not provided with the access code and does not download anything from Microsoft. The license to use/right to use the software could only be granted by Microsoft and not by the Appellant. vi. Therefore. Appellant is not the receiver of the service directly and it is received by the customer electronically by downloading it. No service provided by Microsoft to the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct use rights specific to each product and version and by the terms of the Licence agreement under which you licensed the product. We will provide you with a copy of the applicable product use rights or will make them available to you either by publication on the World Wide Web, at meruseti.com/licensing or at a successor site that we identify, or by some other reasonable means. You acknowledge that you have access to the World Wide Web. We do not transfer any ownership rights in any licensed product and we reserve all rights not expressly granted. Use of any fixes is defined by the product use rights for the affected product or, if the fix is not provided for a specific product, any other use terms we provide. All fixes are licensed to you. Use and ownership of service deliverables will be as set forth in the applicable services agreement and related documents. 2.9 The Ld. Counsel argued that all these would go to show that Microsoft does not transfer the title or ownership of software to the appellant. So also, the appellant has not been provided right to use the software. For this reason itself the activity does not fall under the definition of Section 65(105)(zzzze) of the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment to allege that the title, ownership / right to use the Software has been transferred to the appellant. The Ld. Counsel pointed out that in the said intimation, the Tariff Heading of the documents (Software) is mentioned as CTH 4907. It is not mentioned as 8523 which would apply to downloaded Software contained in media (physical form). This itself would show that the appellant was issuing paper licences to the end customer and has not transferred any title or ownership or right to use the software, as alleged by Department. 2.11 In regard to the issue alleging that there is short payment of service tax of Rs.6,35,23,362/-. The Ld. Counsel submitted that this is regard to software provided to SEZ units. Appellant is not liable to pay service tax under reverse charge basis or forward charge basis. Moreover, the download of software has taken place in most cases before 16.05.2008. 2.12 From the records of the appellant, it was noted by the Department that M/s. Cognizant Technology Solutions India Private Limited which is a non-SEZ customer had placed purchase order on 20.02.2008 on the appellant for various software licenses. Based on the above purchase order, the appellant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant had paid the service tax and therefore, the credit availed is legal and proper. 2.16 The allegation in the 8th issue is that the appellant has paid short paid service tax as they had calculated the tax liability only partial amount paid to Microsoft, the Ld. Counsel submitted that the said conclusion is incorrect. The appellant is not liable to pay any service tax under reverse charge basis as there is no services provided to Microsoft. 2.17 The 9th issue is with regard to non-payment of service tax on IT Services received from Microsoft and provided to domestic customer. This also has relevance to the first issue and the same arguments are adopted by the appellant. The Ld. Counsel prayed that the appeal may be allowed. 3.1 The Ld. Special Counsel Shri C. Subramanian appeared and argued for the Department. The Show Cause Notice dated 21.10.2011 was referred to explain the allegations. It is submitted that the IT Services received by appellant from Microsoft were used for providing outward IT Services to the domestic customers. During the course of verification, it was noted that the appellant had entered into an Agreement (Microsoft Channel Agreement) with M/s. Micro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Company will use commercially reasonable efforts to ensure that each of its Customers is credit worthy before it submits any Customer Agreement to Microsoft, such as by collecting and reviewing financial statements and credit reports. Company must periodically monitor each Customer s continued credit worthiness throughout the Customer Agreement term. 3.2 As per the Scheme, the end customers have huge number of computers (say 200 to 250) and desired to obtain the licence from Microsoft. They obtain the right to use the software through the Large Account Reseller (appellant) instead of obtaining the software in physical form. As per the above Agreement, Microsoft would sell software (i.e., title for the right to use the Microsoft Software) for distribution / sale to appellant and issue an invoice. Microsoft receives the payment from appellant in foreign currency. The appellant in turn would distribute / sell the said software licences to domestic customers who require the licence. The appellant would also issue invoices on these domestic customers after including a profit margin and received the payment from the end customers. The licences so issued through the invoices under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification would exempt services provided under Section 66 of the Finance Act only. Later by Notification No. 17/2011-ST dated 01.03.2011, the Service Tax in respect of services provided to SEZ was exempted even under reverse charge mechanism. The period involved falls prior to 2011 and Notification No. 4/2004 would be applicable. Therefore, the services provided to the SEZ units by the appellant is not eligible for exemption. 3.6 The Ld. Special Counsel for the Department submitted that after paying the service tax, the appellant has adjusted the amount towards the liability for payment of service tax on domestic transactions. The service tax paid in respect of IT services for SEZ units being in full order, the appellant ought not to have adjusted the same. In fact, the appellant had obtained registration and paid the service tax on reverse charge basis under Section 66A read with Rule 1D(iv) of Service Tax Rules, 1994 as a deemed service provider. They ought not to have adjusted the payment for subsequent liability. 3.7 The Ld. Special Counsel submitted that on verification of the records, it was noted that the appellant failed to pay service tax on IT Services received from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services received by them from Microsoft. So also, the allegation of availing ineligible credit and wrong adjustment of input service tax credit is dependent on the answer to the first issue. We are therefore proceed to analyse the first issue. 6. The allegation in the Show Cause Notice is that the appellant received IT Services from Microsoft and used these services for providing IT Services to domestic customers. Para 2 of the Show Cause Notice dated 21.10.2011 is reproduced as under:- M/s. Wipro had received Information Technology Software Services (hereinafter referred to as IT Services) from outside India from M/s. Microsoft Corporation, Singapore and paid service on such service tax under Section 66A of the Finance Act, 1944 as a deemed service provider. The IT Services received from Microsoft were used for providing outward IT Services to the domestic customers. M/s. Wipro had also paid service tax on the outward IT Services provided by them. The procedure involved in receiving IT Services by the appellant is explained in para 4 of the Show Cause Notice. The same has been reproduced in 1.4 above. 7. The definition of IT Services is reproduced in para 2.3 above. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 9. The Ld. Senior Counsel has relied 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 in para 3.3. 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, we find that all these require thorough scrutiny. The Adjudicating Authority has not taken into consideration the pleas put forward by appellant. Instead has reli ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
