Appeals Allowed: No Service Tax on Software Downloads from Foreign Providers

The Tribunal allowed the appeals, setting aside the orders demanding service tax on software downloaded from foreign service providers. It was held that no liability for service tax existed before the introduction of Section 66A of the Finance Act, 1994. The Tribunal determined that downloading software did not constitute a service but rather a purchase of goods. The liability for service tax post-introduction of Section 66A was acknowledged, but excise duty at the time of goods clearance applied. The appeals were allowed, and the demand for service tax was rejected, with no penalties imposed.

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Issues:
- Whether the demand for service tax on software downloaded from foreign service providers is justified.
- Whether the liability for service tax arises on reverse charge basis for the period before the introduction of Section 66A of the Finance Act, 1994.
- Whether downloading software from foreign service providers constitutes a service or purchase of goods.
- Whether the show cause notice issued is within the limitation period.
- Whether the liability for payment of service tax arises for the period after the introduction of Section 66A.

Analysis:
1. Demand for Service Tax on Software Downloaded from Foreign Service Providers:
The Appeals dealt with the issue of whether the activity of downloading software through a computer network from foreign service providers is liable for service tax under the category of "Online Information and Data Base Access and Retrieval Services." The Revenue contended that this activity amounts to a service under Section 65(105)(zzh). However, the Tribunal held that since the service provider was situated abroad, the demand for service tax on reverse charge basis was not justified before the introduction of Section 66A of the Finance Act, 1994.

2. Liability for Service Tax on Reverse Charge Basis:
The Tribunal referenced the decision in the case of Indian National Shipowners Association vs. Union of India to establish that the liability for service tax from foreign service providers arises only after the introduction of Section 66A. Thus, the demand for service tax was set aside for the period before 17.04.2006.

3. Nature of Downloading Software:
Regarding the nature of downloading software, the Appellant argued that it should be considered as goods and not a service. They relied on the decision in the case of TCS vs. State of Andhra Pradesh, where software was classified as goods for sales tax purposes. However, the Tribunal noted that the TCS case was not directly applicable to the present situation, as it dealt with sales tax liability, not service tax.

4. Limitation Period and Liability for Service Tax:
The Appellant also contended that the show cause notice issued was beyond the limitation period. However, the Tribunal did not delve into this aspect as the main focus was on the liability for service tax.

5. Liability for Service Tax Post-Introduction of Section 66A:
For the period after the introduction of Section 66A, the Tribunal held that the liability for service tax arose on the assessees. However, since the software was incorporated into the goods manufactured by the assessees, the liability for excise duty at the time of clearance from the factory was applicable. The Tribunal emphasized that payment of service tax on reverse charge basis would lead to a revenue-neutral situation, as affirmed in the case of Anglo French Textiles.

6. Conclusion:
The Tribunal allowed the appeals filed by the assessees, setting aside the impugned orders demanding service tax. It was held that no liability for payment of service tax existed for the period in question, and consequently, there was no scope for imposing penalties. The Revenue's appeal against the impugned order was rejected as the order itself was set aside.

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