2015 (10) TMI 2413 - AT - Service Tax

Dispute over service classification & refund eligibility remanded for detailed re-examination.

M/s Infosys Technologies Ltd. Versus Commissioner of Central Excise, Pune-I

M/s Infosys Technologies Ltd. Versus Commissioner of Central Excise, Pune-I - TMI Issues Involved:1. Classification of services provided by the appellant.2. Admissibility of CENVAT Credit on input services.3. Refund eligibility under Rule 5 of the Cenvat Credit Rules, 2004.4. Examination of contracts to determine the nature of services provided.5. Applicability of Supreme Court and High Court judgments.Detailed Analysis:1. Classification of Services Provided by the Appellant:The appellant, a 100% EOU-STP unit, engaged in exporting services such as Software Consultancy, Software Development, Maintenance or Repair of Software (MRS), and Management Consultancy related to ERP software implementation. The appellant contended that the services provided should be classified under Maintenance and Repair Services (Section 65(105)(zzg)) and Management Consultancy Services (Section 65(105)(r)), both taxable services. However, the adjudicating authority and Commissioner (Appeals) classified the services under Business Auxiliary Services and Consulting Engineers Service, which excluded software development and computer software engineering from their coverage during the period in question, rendering them non-taxable.2. Admissibility of CENVAT Credit on Input Services:The adjudicating authority rejected the refund claims on the grounds that the output services were exempt from Service Tax, thus making CENVAT Credit on input services inadmissible under Rule 3 and Rule 6(1) of the Cenvat Credit Rules, 2004. The appellant had revised their refund claims, excluding the non-taxable services, but the lower authorities did not accept this revision.3. Refund Eligibility under Rule 5 of the Cenvat Credit Rules, 2004:The appellant sought a refund under Rule 5 of the Cenvat Credit Rules, 2004, which allows refund of accumulated CENVAT Credit due to exports. However, Rule 5, as it stood during the period in question, allowed refunds only to manufacturers, not service providers. The appellant cited the Tribunal's decision in KPIT-Cummins Infosystem Ltd. and the Karnataka High Court's decision in mPortal India Wireless Solutions Pvt. Ltd. to support their claim. However, these cases pertained to periods after the amendment of Rule 5 in 2006, which allowed refunds to service providers.4. Examination of Contracts to Determine the Nature of Services Provided:The Commissioner (Appeals) and the adjudicating authority did not thoroughly examine all contracts to determine whether the services provided were indeed Maintenance or Repair Services. The appellant argued that the services involved corrective, adaptive, and perfective maintenance, which should be classified under Maintenance or Repair Services. The lower authorities failed to distinguish between software development services (for which no refund was claimed) and services under which refunds were claimed.5. Applicability of Supreme Court and High Court Judgments:The appellant relied on the Supreme Court's judgment in TCS vs. State of Andhra Pradesh, which classified software as goods, and subsequent Board Circulars clarifying that maintenance or repair of software is taxable. The appellant also cited the Karnataka High Court's judgment in mPortal India Wireless Solutions Pvt. Ltd., which held that refunds of input service credit are permissible even if the exported service is non-taxable. However, the Tribunal noted that the Karnataka High Court did not consider the definition of Rule 3 during the material time, which allowed input service credit only for taxable services.Separate Judgments:- Member (Technical): The case should be remanded back to the Commissioner (Appeals) to re-examine the nature of services provided, considering the evidence and the provisions of Service Tax law during the material time.- Member (Judicial): The appellant is entitled to a refund of unutilized CENVAT Credit for services classified under Maintenance, Repair, and Management Consultancy, based on the Supreme Court's and High Court's rulings.- Third Member: Agreed with Member (Technical) that the case should be remanded for a detailed examination of all contracts to determine the correct classification of services and eligibility for refunds.Majority Order:The matter is remanded back to the Commissioner to:1. Examine all contracts to decide whether the activity is of 'maintenance or repair' only.2. Determine whether the output services provided are covered under the taxable service of 'maintenance or repair' when the activity also involved development and designing of the software.3. Examine whether the refund of Cenvat Credit under Rule 5 is available when Rule 3 permitted credit on input services only to providers of taxable services.4. Examine whether the refund was admissible to service providers under Rule 5 as it stood during the period in question.Conclusion:The case is remanded back to the Commissioner (Appeals) for a thorough re-examination of the nature of services provided by the appellant, considering all contracts and the relevant provisions of Service Tax law during the material time. The Commissioner must determine the correct classification of services and eligibility for refunds based on this detailed examination.