Tribunal rules against service tax on software maintenance but upholds demand for manpower recruitment agency service.

The Tribunal set aside the demand of service tax on maintenance of computer software under "Maintenance or Repair Service," citing that the demand was not sustainable prior to a specific amendment in 2007. However, the Tribunal upheld the service tax demand under "Man Power Recruitment or Supply Agency Service," stating that the appellant's contentions were not acceptable. The Tribunal directed authorities to verify the admissibility of cenvat credit claimed by the appellant and allowed cum tax benefit on the total gross value of services under this category. The penalty imposed was waived due to the payment made before the show cause notice was issued.

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Issues: Demand of service tax under "Maintenance or Repair Service" for maintenance of computer software services and under "Man Power Recruitment or Supply Agency Service."

Analysis:

Issue 1: Demand of service tax under "Maintenance or Repair Service" for maintenance of computer software services

The appellant, a software firm, was issued a show cause notice demanding service tax on maintenance of computer software services. The appellant argued that the service tax demand was not valid as the relevant notification exempting service tax on software maintenance was rescinded. The appellant relied on legal precedents, including a decision by the Hon'ble Madras High Court, to support their claim that maintenance of computer software was not taxable before a specific amendment in 2007. The Tribunal agreed with the appellant, citing previous judgments and holding that the demand for service tax on software maintenance prior to the 2007 amendment was not sustainable. Therefore, the demand of service tax on maintenance of computer software under "Maintenance or Repair Service" was set aside.

Issue 2: Demand of service tax under "Man Power Recruitment or Supply Agency Service"

Regarding the demand of service tax under "Man Power Recruitment or Supply Agency Service," the adjudicating authority confirmed the demand, stating that the appellant provided manpower recruitment services and paid service tax accordingly. The appellant argued that they were not covered under this service category as they provided specialized IT services and not recruitment services. The Tribunal found that the definition of "Man Power Recruitment or Agency Supply Service" was broad enough to include any service related to recruitment or supply of manpower. The Tribunal upheld the demand for service tax under this category, stating that the appellant's contentions were not acceptable. However, the Tribunal noted that the adjudicating authority did not provide findings on the admissibility of cenvat credit claimed by the appellant on input services utilized for "Man Power Recruitment Service." The Tribunal directed authorities to verify the admissibility of the credit and allowed the appellant to claim cum tax benefit on the total gross value of services under this category.

Penalty Imposition

The Tribunal considered the penalty imposed and decided to waive it, taking into account that the demand under "Man Power Recruitment Service" had been paid before the show cause notice was issued. The Tribunal viewed the issue as an interpretation of tax rules and, therefore, deemed the penalty waiver appropriate.

In conclusion, the Tribunal set aside the demand of service tax on maintenance of computer software under "Maintenance or Repair Service," upheld the service tax demand under "Man Power Recruitment or Supply Agency Service" with cum tax benefit, and waived the penalty. The appeal was partly allowed based on these findings.

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