Appellant liable for service tax on software sale despite VAT, penalty waived due to lack of guilty mind

The Tribunal found that the appellant was liable to pay service tax on the sale value of imported software despite having paid VAT on the transaction. However, due to the absence of a guilty mind for penalty purposes, the Tribunal acknowledged the appellant's argument against the extended period for recovery of service tax. The appellant was directed to pre-deposit a specific amount within a specified timeframe, following which waiver and stay were granted for penalties, as well as the remaining service tax and interest amount.

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Issues involved:
1. Waiver and stay in respect of Service Tax demand.
2. Liability to pay service tax on the sale value of imported software.
3. Validity of invoking extended period for recovery of service tax.
4. Applicability of penalty under Section 78 of the Finance Act, 1994.
5. Ownership rights over the imported software.
6. Preclusion of VAT payment from levy of service tax.
7. Requirement of pre-deposit for waiver and stay.

Analysis:

1. The appellant sought waiver and stay regarding a Service Tax demand of Rs. 12,04,76,672/-, including education cess, for the period from 16-5-2008 to 6-7-2009, along with interest and penalties. The Tribunal noted that a significant portion of the demand was beyond the normal limitation period, with the taxable amount within the normal period being approximately Rs. 18.55 lakhs. The demand was related to the sale value in India of imported 'Information Technology Software' sold by the appellant. The appellant argued that they should not be liable for service tax as they had already paid VAT on the sale value and customs duty upon import.

2. The appellant relied on a previous decision to support their case against the extended period for recovery of service tax. The Tribunal considered the argument that the absence of a guilty mind, as determined by the adjudicating authority, should preclude the imposition of penalties under Section 78 of the Finance Act, 1994. The appellant contended that the grounds for invoking the extended period were similar to those for imposing penalties, and the absence of guilt should also affect the extended period demand.

3. The Respondent argued that the payment of VAT on the sale value did not automatically exclude the liability for service tax. They contended that since the ownership of the imported software remained with the foreign seller, the transaction in India should not be considered an absolute sale. Therefore, the submission based on VAT payment should not be accepted prima facie.

4. After careful consideration, the Tribunal found that no proprietary rights were transferred to the appellant based on the agreement with the foreign company. They referred to a Supreme Court decision stating that VAT payment does not preclude the levy of service tax on the service element of the transaction. While the appellant seemed liable for service tax on the transaction, the Tribunal acknowledged the validity of the appellant's argument regarding the extended period demand, given the absence of a guilty mind for penalty purposes.

5. The Tribunal directed the appellant to pre-deposit Rs. 18.55 lakhs within six weeks, with further reporting requirements. Upon compliance, waiver and stay were granted for other penalties, along with the remaining service tax and interest amount.

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