Tribunal upholds service tax levy on software supply, penalties imposed for statutory breaches

The tribunal upheld the levy of service tax on the supply of software, ruling that the taxable event occurred after the introduction of the tax statute. It also upheld the extended time limit for issuing the Show Cause Notice due to the appellant's suppression of material facts. Additionally, the tribunal sustained the penalty imposed, emphasizing that contravention of statutory obligations warranted penalties regardless of intent. Consequently, the appeal was dismissed, and the tribunal ruled against the appellant on all three issues, with the judgment pronounced on 22.02.2023.

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Issues Involved:
1. Whether service tax was payable on the supply of the said service even prior to its introduction in the taxing statute.
2. Whether the extended time limit could be invoked for the issue of SCN when the entire issue involved the interpretation of law relating to taxability.
3. Whether in the facts and circumstances penalty is sustainable.

Detailed Analysis:

Issue 1: Service Tax Payability Prior to Introduction in Taxing Statute
The appellant argued that the information technology software was supplied electronically from abroad by SSPSL and downloaded in December 2007, prior to the introduction of the service in the Finance Act 1994. They contended that no tax could be levied on the supply before the levy came into force. The Revenue countered that mere downloading of the software does not constitute the completion of the service. They argued that other incidental activities, such as installation and training, were completed only after the service was brought under the tax net on 16/05/2008. The tribunal held that the right to use the software, as per the End User License Agreement (EULA) signed on 27/05/2008, constituted the taxable event. Hence, the service was supplied after the introduction of the tax and was subject to the levy.

Issue 2: Extended Time Limit for Issuing SCN
The appellant claimed that the extended time limit for issuing the Show Cause Notice (SCN) could not be invoked as the issue involved the interpretation of law relating to taxability. They also argued that the assessments were provisional at the time of audit, and they were eligible to take credit of tax paid under reverse charge. The Revenue contended that the appellant had suppressed material facts by not filing details of services received from persons outside India in the ST3 returns. The tribunal agreed with the Revenue, stating that the adjudicating authority had provided clear reasons for invoking the extended time limit due to suppression of facts and intention to evade tax.

Issue 3: Sustainability of Penalty
The appellant argued that the penalty was not sustainable as the entire exercise was revenue-neutral, and they could not have achieved any purpose to evade the duty. They cited the judgment of the Hon'ble Madras High Court in Commissioner of Central Excise, Chennai - IV Vs. Tenneco RC India Pvt. Ltd. The Revenue referred to the Apex Court judgment in Dharampal Satyapal Vs. Commissioner of Central Excise, New Delhi, which stated that availability of MODVAT cannot be a defense for not paying duty. The tribunal upheld the penalty, stating that the intention of the parties committing the violations is irrelevant once the contravention of statutory obligations is established. The tribunal also emphasized the importance of the findings of facts by the Original Authority and found no procedural impropriety or disproportionality in the penalty imposed.

Conclusion:
The tribunal dismissed the appeal, upholding the impugned order, and ruled against the appellant on all three issues. The judgment was pronounced in court on 22.02.2023.

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