2007 (5) TMI 110 - AT - Service Tax

Tribunal allows appeal on service tax demand for software procurement agent.

The Tribunal found that the appellant acted as an agent for SAP India, facilitating software procurement and maintenance for affiliates. Consequently, the ... Management consultancy service - agency/agent doctrine - pass-through arrangement - service tax liability - exemption under Notification No. 16/2004-ST - consulting engineer exemption - penalty and interest under Finance Act, 1994Management consultancy service - agency/agent doctrine - pass-through arrangement - service tax liability - The appellant did not render management consultancy services in relation to ERP/SAP software and was not liable to service tax for the period in dispute. - HELD THAT: - On the material placed before the Tribunal - in particular the agreement dated 31-3-1997 and the tripartite arrangements - SAP India granted the proprietary ERP software license and provided maintenance to the Tata group affiliates, while the appellant acted as the nodal or coordinating agency that procured licences, collected license and AMC payments from affiliates and remitted them to SAP India. The Tribunal found that the appellant merely acted as agent or pass-through for SAP India and did not perform management consultancy, advice, technical assistance, or services of modification/upgradation of the software itself. Consequently, the gross amounts recovered by the appellant could not be characterised as its receipt for management consultancy services chargeable to service tax, and the demand confirmed by the Commissioner on that ground was unsustainable. [Paras 5]Demand of service tax confirmed by the Commissioner on the ground that the appellant provided management consultancy services is set aside; the appellant is not liable to pay service tax for the period in dispute.Penalty and interest under Finance Act, 1994 - service tax liability - Penalties and interest imposed on the appellant were not sustainable in view of the finding that no service tax liability arose. - HELD THAT: - As the Tribunal concluded that the appellant was not providing the taxable management consultancy service, there was no foundation for imposing interest or penalties under the Finance Act, 1994. The Tribunal further observed that, given the absence of liability, the question of invoking extended limitation or imposing penalties did not arise and that the appellant was not liable to payment of interest or penalties confirmed in the impugned order. [Paras 5]Imposition of interest and penalties is quashed; consequential relief granted to the appellant.Final Conclusion: The appeal is allowed: the Tribunal held that the appellant merely acted as agent/pass-through for SAP India and did not provide management consultancy services; the confirmed demand of service tax, interest and penalties are set aside and the impugned order is quashed with consequential relief. Issues:1. Whether services provided in respect of ERP software system were chargeable to service tax.2. Whether the appellant was liable to pay service tax under the category of management consultant.3. Whether the appellant acted as a pass-through agency for the affiliates.4. Whether the appellant provided SAP maintenance services.5. Whether the amount recovered by the appellant from the affiliates towards maintenance service fees was liable to service tax.6. Whether the appellant was eligible for exemption under Notification No. 4/1999-ST.7. Whether the demand of service tax on the appellant for providing management consultancy service was sustainable.Analysis:1. The appellant provided services related to ERP software system to clients. The Revenue alleged that these services were chargeable to service tax. The Commissioner confirmed the demand, imposing penalties and interest. The appellant contested the order, claiming exemption under Notification No. 16/2004-ST.2. The appellant argued that they acted as a pass-through agency for the affiliates, procuring SAP licenses and maintenance services. They contended that they were not liable to pay service tax under the management consultant category, as they did not provide consultancy, advice, or technical assistance.3. The appellant maintained that they were merely a coordinating agency between SAP India and the affiliates, without undertaking activities specified in the agreement. They highlighted their lack of access to the SAP software source code, indicating incapability to provide maintenance services.4. The appellant emphasized that SAP India or its parent company had the exclusive right to modify or upgrade the software, rendering them unable to provide maintenance services. They argued that the services were actually provided by SAP India to the affiliates, not by the appellant.5. The Commissioner relied on section 67 to assert that the amount charged by the appellant from affiliates was subject to service tax, rejecting deductions for license fees paid to SAP India. The appellant challenged this, stating that they did not use the maintenance services themselves but acted as an intermediary.6. The appellant sought exemption under Notification No. 4/1999-ST, which covered services provided by consulting engineers in relation to computer software. They contended that even if considered a management consultant, they were eligible for the exemption during the disputed period.7. The Tribunal examined the agreements and transactions between the appellant, SAP India, and affiliates. It concluded that the appellant acted as an agent for SAP India, facilitating the procurement of software and maintenance for the affiliates. As a result, the demand for service tax as a management consultant was deemed unsustainable, leading to the appeal's allowance.