At, Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Mumbai
By, THE HONORABLE JUSTICE: RAMESH NAIR
By, MEMBER AND THE HONORABLE JUSTICE: RAJU
For Petitioner: Dayanand K., CA And For Respondents: B. Kumar Iyer, Supdt. (A.R.)
1. This appeal has been filed by M/s. Sonata Information Technology Ltd. against confirmation of demand of service tax and imposition of penalty under Section 76 and 78. Ld. CA for the appellants argued that vide circular no. 70/19/03-ST dated 17.12.2003, the CBEC had clarified that maintenance and repair service of software is exempted vide Notification 20/2003-ST dated 21.08.2003 as also by Notification 4/99-ST dated 28.02.1999. He pointed out that later on vide Circular no. 81/2/2005-ST dated 07.10.2005, CBEC clarified that in view of the Apex Courts decision in the case of Tata Consultancy Services 2004 (174) ELT 22 (SC) software is goods, therefore repairs and maintenance of software is nothing but repairs and maintenance of goods and same would be leviable to service tax. This view was once again clarified vide Circular no. dated 07.03.2006 wherein it was clarified that service tax would be leviable on maintenance and repair w.e.f. 09.07.2004 i.e. Notification 20/2003-ST was rescinded.
2. Ld. CA further submits that they had discharged the service tax liability w.e.f. 07.10.2005 after the clarification of the board regarding leviability of service tax on repair of computer software. Earlier they had not paid service tax under bonafide belief that they are exempted from service tax and their belief was based on Board circular dated 17.12.2003. He further argued that the definition of Management, Maintenance and repair service was amended with effect from 01.06.2007 and an explanation was added to clarify that the term goods include the computer software for the purpose of service tax. He pointed out that the said circular dated 07.06.2007 was however, held to be contrary to the statutory provisions by the Hon'ble High Court in Kasturi & Sons Ltd : 2011 (22) STR 129 . Ld. CA further pointed out that the show-cause notice has been issued invoking the extended period of limitation. He pointed out that even after audit a lot of time was taken to issue show-cause notice. He pointed out that appellants were filing service tax returns regularly and the show-cause notice was issued simply because there was change of mind of CBEC. He argued that even CBEC was of the opinion that no service tax was leviable on maintenance and repair of computer software and had clarified the same vide circulardated 17.12.2003. He pointed out that the said circular was rescinded and replaced by Circulardated 07.10.2005 holding that software maintenance repair or service is liable to service tax. He argued that the invocation of extended period is not justified.
3. Ld. AR relies on the impugned order. He particularly reiterated the argument made in various circulars of the Board.
4. We have gone through the rival submissions. We find that the CBEC vide circulardated 17.12.2003 had clarified as follows:-
Subject : Clarification on the taxability of maintenance of Computer Software - Regarding.
An issue has been raised whether the organisations who are engaged in design, development are maintenance of Software and enter into Annual Maintenance contracts for maintenance of their software, are exempt from Service Tax or not.
Maintenance or repair means any service provided by (i)?any person under a maintenance contract or agreement or (ii) a manufacturer or any person authorised by him in relation to maintenance or repair or servicing of any goods or equipment. In the instant case repair is not of tangible goods but that of intangible program/software which is in installed condition and thus the maintenance and repair of software is not maintenance and repair of goods. Further an exemption has been granted to maintenance or repair services in relation to computer, computer systems and computer peripherals vide Notification No. 20/2003-S.T ., dated 21-8-2003. As such computer software would form a part of computer systems would be covered under this notification. Under the category of consulting engineer vide Notification No. 4/99-S.T ., dated 28-2-99 taxable service provided to any person by a consulting engineer in relation to computer software is exempted. The definition of Business Auxiliary Servicealso specifically provides that; inter alia, maintaining of computer software is covered in the T service, which is excluded from the scope of business auxiliary service.
Taking the above into consideration, it is to clarify that?maintenance of Software is not chargeable to Service Tax.
Suitable Trade Notice may be issued for the benefit of the trade.
The receipt of this Circular may kindly be acknowledged indicating the date of its receipts in your office.
The said view was however modified by issue of Circular no. 81/2/2005-ST dated 07.10.2005 and Circular no. dated 07.03.2006. In these circular, following was clarified:-
Circular dated 07.10.2005
Subject : Leviability of Service tax on maintenance or repair of software
4. Any service provided to a customer by any person in relation?to maintenance or repair is leviable to service tax under section 65(105) (zzg) of the Finance Act, 1994. Maintenance or repair is defined under section 65(64) of the said Act. Accordingly, maintenance or repairmeans any service provided in relation to maintenance or repair or servicing of any goods or equipment.
5. Software, being goods, any service in relation to maintenance?or repair or servicing of software is leviable to service tax under section 65(105)(zzg) read with section 65(64) of the Finance Act, 1994.
Circular no. dated 07.03.2006 is reproduced below:-
2. Doubts have been raised regarding date of applicability of service tax on maintenance or repair of computer software. The issue was discussed by the Central Board of Excise and Customs. In this regard, it was informed that service tax is payable from 9.7.2004, i.e. the day Notification no. 20/2003-ST was rescinded.
5. It is seen that even CBEC was not sure about the liability of service tax on the said services during the period 09.07.2004 to 06.10
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.2005. The first circular approving the liability of service tax on the said activity was issued on 07.10.2005 and the circular prior to that clearly held that the said service is not taxable. In these circumstances, it cannot be said that the appellants could not have had a bonafide belief that the said service was not taxable. The show-cause notice and impugned order does not give any specific grounds as to why extended period can be invoked in such circumstances. In these circumstances, we find that the extended period of limitation cannot be invoked and consequently the demand of duty and penalty cannot be sustained. The appeal is consequently allowed on grounds of limitation.