Software development services exempted from service tax under Notification 04/1999-ST during 2002-2004 period, demands set aside

CESTAT Chandigarh ruled in favor of appellant regarding service tax liability for software development activities during 2002-2004. The tribunal held that Additional Commissioner had proper jurisdiction to adjudicate the matter under Finance Act 1994 and Central Excise Act 1944. Appellant's software development services were exempted from service tax under Notification 04/1999-ST and CBEC Circular 70/19/2003-ST. The tribunal distinguished that while appellant's activities became taxable under Information Technology Software Services category from May 2008, during the disputed period they qualified for exemption as consulting engineer services. Since no service tax liability existed, demands for interest and penalty were invalid. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Jurisdiction of the Additional Commissioner to adjudicate the show cause notice.
2. Applicability of exemption Notification No. 04/1999-ST dated 28.02.1999 to the appellant's services.
3. Liability of the appellant to pay service tax for the period in dispute.
4. Imposition of interest and penalties.

Summary:

1. Jurisdiction of the Additional Commissioner:
The appellant contended that only an Assistant Commissioner or a Deputy Commissioner had jurisdiction to pass the assessment order. However, it was observed that the Additional Commissioner was authorized to adjudicate the show cause notice as per Section 83 of the Finance Act, 1994 and Section 12E of the Central Excise Act, 1944. The Tribunal found no infirmity in the jurisdiction of the Additional Commissioner to adjudicate the show cause notice.

2. Applicability of Exemption Notification No. 04/1999-ST:
The appellant argued that their services were exempt from service tax under Notification No. 04/1999-ST dated 28.02.1999, which exempts services provided by a consulting engineer in relation to computer software. The Tribunal examined the agreement between the appellant and Yamaha India and concluded that the appellant was engaged in software development, which is exempted from service tax. The Tribunal also referred to CBEC Circular No. 70/19/2003-ST dated 17.12.2003, which clarified that maintenance of software is not chargeable to service tax.

3. Liability to Pay Service Tax:
The appellant's services were categorized under Information Technology Software Service, which became taxable only from 16.05.2008. The period of dispute was from 01.10.2002 to 12.03.2004, during which the appellant's services were exempt from service tax. The Tribunal held that the appellant was not liable to pay service tax for the disputed period.

4. Imposition of Interest and Penalties:
Since the appellant was not liable to pay service tax during the disputed period, the demand for interest and imposition of penalties were deemed unwarranted. The Tribunal set aside the impugned order and allowed the appeal with consequential relief.

Conclusion:
The Tribunal concluded that the appellant's services were exempt from service tax during the disputed period, and the Additional Commissioner had the jurisdiction to adjudicate the matter. Consequently, the demand for service tax, interest, and penalties was set aside, and the appeal was allowed with consequential relief.

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