2020 (11) TMI 753 - AT - Service Tax

Tribunal allows appeal, services not taxable under Management Consultant Service. Invalid demand prior to 16.5.2008. Penalties set aside.

M/s. RELIGARE TECHNOVA GLOBAL SOLUTIONS LTD. (Now known as Dion Global Solution Limited) Versus Commissioner of SERVICE TAX- I

The appeal was allowed by the Tribunal as the services provided by the appellant were held not taxable under Management or Business Consultant Service for ... Non-payment of service tax - Management or Business Consultant Service or Information Technology Software Service? - modification and customization of software, install the software for use on the equipment for trading, providing support through remote access using the internet as a medium, sending engineers to the site of customers, provide additional training required by the customer from time to time - HELD THAT:- The learned Commissioner after examining the services rendered by he appellant has come to the conclusion that the activities carried out by the appellant is covered under the category of Enterprise Resource Planning (ERP) Software Application and the same is rightly classifiable under the category of Management or Business Consultant service and are liable for service tax - After carefully considering the definition of Management or Business Consultant Service and Information Technology Software Service, it can be concluded that Enterprise Resource Planning implementation would not be covered under Management or Business Consultant service. Further, as per the terms of the Agreement entered into between the appellant and their clients, the activities undertaken by the appellant are covered under the definition of Information Technology Software Service as specifically covered under the Information Technology Services as taxable under Section 65(105)(zzzze) with effect from 16.5.2008. Further, the activities alleged in the show-cause notice clearly fall within the ambit of Information Technology Software Service as defined in the Finance Act, 1994. The issue involved in the present case is no more res integra and has been settled by various decisions of the Tribunal and the apex court. In this regard, it is pertinent to mention that this Tribunal in the case of IBM India Pvt. Ltd. [2009 (4) TMI 314 - CESTAT, BANGALORE] has specifically held that implementation of Enterprise Resource Planning does not attract service tax under the category of Management or Business Consultant Service. Time Limitation - HELD THAT:- The period involved in the present case is from 1.3.2006 to 15.5.2008 whereas the show-cause notice was issued on 8.4.2011 by invoking the extended period of limitation alleging suppression of facts with intent to evade payment of tax by the appellant - the appellant has been regularly filing the returns and was under bona fide belief that their activities are not liable to service tax under Management or Business Consultant Service. It is not disputed that the appellant is paying service tax with effect from 16.5.2008 under the category of Information Technology Software Service. Moreover, the department was very much aware of the activities of the appellant as the department conducted audit of the accounts of the appellant from time to time and the last audit was conducted in December 2009 but has not raised any objections regarding the activities of the appellant, hence, allegation of suppression of material facts against the appellant is not sustainable. Appeal allowed on merits as well as on limitation. Issues Involved:1. Classification of the services provided by the appellant.2. Applicability of service tax under the category of Management or Business Consultant Service.3. Validity of the demand raised for the period prior to 16.5.2008.4. Invocation of the extended period of limitation.5. Imposition of penalties and interest.Detailed Analysis:1. Classification of the Services Provided by the Appellant:The primary issue in the present case is whether the services rendered by the appellant, involving the development and licensing of an internet-based trading software 'Trade Anywhere', fall under the taxable services of Management or Business Consultant Service or Information Technology Software Service. The appellant argued that their services are related to engineering and not consultancy in management or business. They emphasized that their software services should be classified under Information Technology Software Service, which became taxable only from 16.5.2008.2. Applicability of Service Tax under the Category of Management or Business Consultant Service:The department contended that the appellant's activities, such as software modification, customization, installation, and support, fall under Management or Business Consultant Service. However, the Tribunal examined the definitions under the Finance Act, 1994, and concluded that the services provided by the appellant do not fit the criteria for Management or Business Consultant Service. The Tribunal noted that the services are executor in nature and related to the implementation of Enterprise Resource Planning (ERP) software, which is not connected to the management of an organization.3. Validity of the Demand Raised for the Period Prior to 16.5.2008:The Tribunal highlighted that Information Technology Software Service was specifically made taxable from 16.5.2008. Since the disputed period is prior to this date, the Tribunal held that no service tax could be demanded for that period. The Tribunal supported its decision by citing various precedents, including the case of IBM India Pvt. Ltd., which established that ERP implementation services do not attract service tax under Management or Business Consultant Service.4. Invocation of the Extended Period of Limitation:The show-cause notice was issued on 8.4.2011 for the period from 1.3.2006 to 15.5.2008, invoking the extended period of limitation due to alleged suppression of facts by the appellant. The Tribunal found that the appellant had been regularly filing returns and was under a bona fide belief that their services were not taxable under the disputed category. Moreover, the department had conducted audits and was aware of the appellant's activities. Hence, the Tribunal held that the invocation of the extended period of limitation was not justified, and the entire demand was time-barred.5. Imposition of Penalties and Interest:Since the Tribunal concluded that the appellant was not liable to pay service tax under the category of Management or Business Consultant Service and the demand was time-barred, the imposition of penalties and interest did not arise. The Tribunal set aside the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994.Conclusion:The appeal was allowed on merits as well as on the grounds of limitation, with consequential relief to the appellant. The Tribunal held that the services provided by the appellant were not taxable under Management or Business Consultant Service for the disputed period, and the demand was time-barred due to the lack of suppression of facts. The decision was pronounced in Open Court on 24/11/2020.