2013 (9) TMI 1044 - AT - Service Tax

Service Tax Appeal Dismissed for Software Maintenance Services

The Tribunal dismissed the appeal against the demand of Service Tax, amounting to Rs. 1,51,273/- along with interest, for the period from 9-7-2004 to ... Maintenance or repair service - that during the period in dispute, there was confusion in the trade where the maintenance or repair of computer software comes under the scope of maintenance and repair service - Board circular dated 17-12-2003 - Held that: - the demand is for the period starting from 9-7-2004 - maintenance and repair of computer or computer system were exempted from payment of Service Tax under N/N. 20/2003-S.T., dated 21-8-2003 and the Notification was withdrawn in the year 2004 and the adjudicating authority in the present proceedings allowed the benefit of this Notification prior to 9-7-2004. Also, there is no evidence produced by the appellant that the major activity under the agreement is for enhancement or upgradation of software. Appeal dismissed - decided against appellant. Issues:- Appeal against demand of Service Tax- Interpretation of maintenance or repair service under Section 65(64) of the Finance Act- Applicability of Board circulars and previous judgments- Exemption under Notification 20/2003-S.T.- Comparison with the decision in SAP India Pvt. Ltd. caseAnalysis:1. The appellant contested a demand of Service Tax amounting to Rs. 1,51,273/- along with interest for the period from 9-7-2004 to October 2005, arguing that the confusion in the trade regarding maintenance or repair of computer software led to the misinterpretation of tax liability. The appellant relied on Board circulars from 2003 and 2008, emphasizing that maintenance of software was initially not chargeable to Service Tax but later classified as part of maintenance or repair service under Section 65(64) of the Finance Act post a Supreme Court decision.2. The Revenue asserted that maintenance of software falls under maintenance or repair service as defined in Section 65(64) of the Finance Act, citing the Supreme Court's ruling that software is considered goods. The Revenue differentiated the present case from the SAP India Pvt. Ltd. judgment, highlighting that the Tribunal in that case deemed the activity as development of software, not maintenance or repair. In contrast, the appellant in this case provided maintenance or repair services for software under distinct contracts, justifying the demand.3. The Tribunal examined the definition of maintenance or repair service under Section 65(64) of the Finance Act, emphasizing that it includes services provided under maintenance contracts related to goods. Referring to the Supreme Court's decision on software being classified as goods, the Tribunal upheld the demand. Additionally, the Tribunal noted the exemption under Notification 20/2003-S.T., which was withdrawn in 2004, and acknowledged the absence of evidence indicating that the appellant's primary activity was software enhancement or upgradation, unlike the situation in the SAP India Pvt. Ltd. case.4. Ultimately, the Tribunal dismissed the appeal, aligning with the Revenue's position that the appellant's provision of maintenance or repair services for software fell within the ambit of taxable services as per Section 65(64) of the Finance Act. The judgment underscored the significance of the Supreme Court's interpretation of software as goods and the withdrawal of the exemption under Notification 20/2003-S.T., culminating in the rejection of the appellant's arguments akin to the SAP India Pvt. Ltd. case.