2025 (4) TMI 825 - AT - Service Tax

Appellant liable for service tax on 100% of Annual Technical Support fee value, not 25% claimed

The CESTAT Bangalore held that the appellant was liable to pay service tax on 100% of the Annual Technical Support (ATS) fee invoice value, rejecting ... Liability to pay service tax on Annual Technical Support (ATS) fee on 100% of the invoice value as claimed by the Revenue as against the claim of the appellant that they are liable to pay only on 25% of the value - period of dispute is February 2007 to March 2009 - HELD THAT:- From the records, it is seen that the appellant has entered into software and support service agreement with the ICICI Bank Corporation Limited wherein at Clause 1.5 of the Agreement “updates” is defined as shall mean improved releases of the program which are generally made available at no additional cost to Infosys’ Licensees, who have purchases Annual Technical Support as specified in annexure-4- BANCS 2000 support services. Update shall not include any options or future products which Infosys’ licenses separately. In the instance case also, it is seen that VAT is being paid only on deemed sale and clearly goods are not found to be part of the Annual Technical Support Service, hence, the question of abatement does not arise even though the sale is considered to be deemed sale and VAT is discharged by the appellant. The fact that VAT has been paid will not vitiate the fact that the services rendered by the appellant are not leviable to service tax as is held by the Hon’ble Supreme Court in the case of BSNL [2006 (3) TMI 1 - SUPREME COURT], wherein their Lordships observed 'It is, therefore, unnecessary to deal with the question of delivery of possession which is related only to situs and not to subject-matter of taxation which is a transfer of right to use goods. In the present case, as no goods element are involved, the transaction is purely one of service. There is no transfer of right to use the goods at all.' In the instant case, it is also a fact that prior to and after the period in dispute, the appellant is paying service tax on the entire invoice value without disputing the fact that they are discharging VAT on part of the same value. Therefore, the question of not paying service tax on the entire value during the disputed period does not arise as the entire value is exclusively towards service element. There are no reason to disagree with the Commissioner with regard to payment of service tax on the entire invoice value. Accordingly, same is upheld. However, the appellant has been approaching the department and agitating this issue through series of correspondences/communications from December 2005 onwards. Various correspondence has been placed on record from December 2005 to September 2009 and at no point of time, objections were raised by the department. The Commissioner in the impugned order though admits the fact that the appellant vide their letter dated 26.04.2007 had informed the Department that service tax was being discharged on 25% of the value, discarded the same on the ground that the letter nowhere mentioned that VAT was being paid and the appellant failed to file the agreements and these omissions indicate the intention to evade payment of tax. Conclusion - ATS services provided by the appellant are subject to service tax on 100% of the invoice value, as they do not constitute a deemed sale under Article 366(29A) of the Constitution. Appeal allowed in part. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the appellant is liable to pay service tax on 100% of the invoice value for Annual Technical Support (ATS) services or only on 25% of the value.Whether the services provided under ATS can be classified as a 'deemed sale' under Article 366(29A) of the Constitution of India, thereby subject to VAT instead of service tax.Whether the appellant is entitled to claim abatement under Notification No. 12/2003-ST for the value of materials allegedly included in ATS services.Whether the extended period of limitation can be invoked for the demand of service tax.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Liability to Pay Service Tax on 100% of the Invoice Value- Relevant Legal Framework and Precedents: The Finance Act, 1994, particularly Section 65(64), which defines Management, Maintenance, and Repair (MMR) services, and Section 65(105)(zzg), which imposes service tax on such services.- Court's Interpretation and Reasoning: The Tribunal examined the nature of the ATS services and concluded that these services are not composite contracts involving a sale of goods. The agreements with clients specified that updates and upgrades were provided free of cost, indicating that the transaction was purely for services rather than a sale of goods.- Key Evidence and Findings: The agreements between the appellant and clients, particularly with ICICI Bank, indicated that ATS services included telephonic consultation, error correction, and free updates and upgrades. These services were provided for a separate consideration termed as ATS charges.- Application of Law to Facts: The Tribunal applied the above legal framework to determine that the entire value of ATS services was subject to service tax, as they were not part of a composite contract involving a sale of goods.- Treatment of Competing Arguments: The appellant argued that 75% of the ATS value was subject to VAT as a deemed sale. However, the Tribunal found no evidence of a sale of goods, as updates and upgrades were provided at no additional cost.- Conclusions: The Tribunal concluded that the appellant is liable to pay service tax on 100% of the invoice value for ATS services.Issue 2: Classification of ATS as a 'Deemed Sale'- Relevant Legal Framework and Precedents: Article 366(29A) of the Constitution of India, which defines deemed sales, and the Karnataka Value Added Tax Act.- Court's Interpretation and Reasoning: The Tribunal found that the ATS services did not constitute a deemed sale, as there was no transfer of property in goods or right to use goods for consideration.- Key Evidence and Findings: The Tribunal noted that the ATS agreements included free updates and upgrades, which do not constitute a sale under the VAT Act.- Application of Law to Facts: The Tribunal applied the definition of sale under the VAT Act and concluded that ATS services were not a deemed sale, as there was no consideration for the transfer of goods.- Treatment of Competing Arguments: The appellant's reliance on previous judgments was found to be misplaced, as those cases involved different factual scenarios.- Conclusions: The Tribunal concluded that ATS services do not qualify as a deemed sale and are therefore subject to service tax.Issue 3: Entitlement to Abatement under Notification No. 12/2003-ST- Relevant Legal Framework and Precedents: Notification No. 12/2003-ST, which allows abatement of service tax for the value of goods and materials sold.- Court's Interpretation and Reasoning: The Tribunal found that ATS services did not involve the sale of goods, as updates and upgrades were provided free of cost.- Key Evidence and Findings: The agreements clearly stated that updates and upgrades were part of ATS services and did not involve any additional cost.- Application of Law to Facts: The Tribunal applied the conditions of the notification and concluded that the appellant was not entitled to abatement, as there was no sale of goods.- Treatment of Competing Arguments: The appellant's claim for abatement was rejected, as the Tribunal found no evidence of a sale of goods.- Conclusions: The Tribunal concluded that the appellant is not entitled to abatement under Notification No. 12/2003-ST.Issue 4: Extended Period of Limitation- Relevant Legal Framework and Precedents: Section 73 of the Finance Act, 1994, which allows for an extended period of limitation in cases of suppression of facts.- Court's Interpretation and Reasoning: The Tribunal found that the appellant had been in correspondence with the Department regarding the taxability of ATS services, indicating no suppression of facts.- Key Evidence and Findings: The appellant had communicated their position to the Department through various correspondences, and the Department had not raised objections until much later.- Application of Law to Facts: The Tribunal applied the legal standard for suppression of facts and found that the extended period of limitation was not applicable.- Treatment of Competing Arguments: The Tribunal rejected the Department's argument for invoking the extended period, as there was no evidence of willful suppression.- Conclusions: The Tribunal concluded that the demand for service tax is limited to the normal period of limitation, and the extended period is not applicable.3. SIGNIFICANT HOLDINGS- The Tribunal held that ATS services provided by the appellant are subject to service tax on 100% of the invoice value, as they do not constitute a deemed sale under Article 366(29A) of the Constitution.- The Tribunal upheld the Commissioner's decision to deny abatement under Notification No. 12/2003-ST, as there was no sale of goods involved in ATS services.- The Tribunal found that the extended period of limitation could not be invoked due to the lack of evidence of willful suppression of facts by the appellant.- The demand for service tax is limited to the normal period, and all penalties imposed by the Commissioner are set aside.