Appeal allowed: Software not subject to service tax under Finance Act, 1994.

The Tribunal set aside the impugned order, allowing the appeal of M/s Infrasoft Tech India Ltd. The appellant's software was classified as 'canned software,' considered goods and not subject to service tax under the Finance Act, 1994. The decision was based on the software being used without evidence of customization, meeting the criteria established in previous case law. The order was pronounced on 26/02/2020.

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Issues Involved:
1. Classification of the appellant's activities under the definition of 'taxable service' in section 65(105)(zzzze) of Finance Act, 1994.
2. Validity of the show cause notices and adherence to principles of natural justice.
3. Applicability of the concept of 'commercial exploitation' in the context of the appellant's software.
4. Determination of whether the appellant's software constitutes 'canned software' or 'customized software'.
5. Taxability of the appellant's activities under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of the appellant's activities under the definition of 'taxable service' in section 65(105)(zzzze) of Finance Act, 1994:
The appellant, M/s Infrasoft Tech India Ltd, challenged the recovery of Rs. 3,11,95,070/- along with interest and penalty, contending that their activities do not conform to the description of taxable service under section 65(105)(zzzze) of the Finance Act, 1994. The appellant argued that their software, marketed as 'core banking' software, was not liable under the sub-clause (v) of the said section. The Tribunal noted that the appellant's software was used by the banking industry without evidence of customization according to specific customer requirements. The software was deemed 'canned software,' which the Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh held to be goods and precluded from service tax under the Finance Act, 1994.

2. Validity of the show cause notices and adherence to principles of natural justice:
The appellant argued that the show cause notices dated 3rd October 2011 and 6th March 2012 were not in consonance with the principles of natural justice as they failed to invoke the specific sub-clause within the definition of 'taxable service.' The Tribunal observed that the failure to crystallize the sub-clause was not fatal to the proceedings, referencing the Supreme Court decision in Collector of Central Excise, Calcutta v. Pradyumna Steel Ltd.

3. Applicability of the concept of 'commercial exploitation' in the context of the appellant's software:
The appellant contended that there was no commercial exploitation of their software, as it was merely made available to customers for their own use. The Tribunal referred to the decision in Director of Income Tax v. Infrasoft Ltd, which distinguished between a copyrighted article and a copyright right. The Tribunal concluded that the appellant's software did not involve commercial exploitation as defined in the context of the Finance Act, 1994.

4. Determination of whether the appellant's software constitutes 'canned software' or 'customized software':
The Tribunal found no evidence that the appellant's software was designed according to specific customer requirements or standards. The software was provided along with a license to use, which is a common industry practice for 'canned software.' The Tribunal held that the appellant's software was 'canned software,' which is considered goods and not subject to service tax under the Finance Act, 1994.

5. Taxability of the appellant's activities under the Finance Act, 1994:
The Tribunal examined the scope of 'commercial exploitation' as elaborated in the circular dated 4th November 2009 by the Central Board of Excise & Customs. The Tribunal concluded that the commercial exploitation of the competencies of the customers supplemented by the appellant's software did not constitute commercial exploitation of the software itself. The agreement did not provide for the reproduction or distribution of the software, which is essential for the 'right to use' to be taxable under section 65(105)(zzzze) of the Finance Act, 1994.

Conclusion:
The Tribunal found no merit in the impugned order and set it aside, allowing the appeal. The appellant's software was deemed 'canned software,' not subject to service tax under the Finance Act, 1994. The order was pronounced in the open court on 26/02/2020.

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