2025 (7) TMI 560 - AT - Service Tax

Software access from overseas company constitutes OIDAR service under reverse charge but demand barred by limitation due to disclosed transactions

M/s. Texas Instruments (India) Pvt. Ltd. Versus Commissioner of Central Excise and Service Tax, Large Taxpayers Unit, JSS Tower, Bangalore

CESTAT Bangalore held that appellant's access to software tools from overseas company constituted OIDAR service, making them liable for service tax under ... Classification of services - Online Information Database Access or Retrieval service (OIDAR service) or not - activity of providing access to software tools installed in the server by the overseas company M/s. Texas Instruments Incorporated, USA (TIUSA) and access / retrieval to it by the appellant for undertaking software design and development - invocation of extended period of limitation - HELD THAT:- The services received by the appellant by way of access of software tools installed in their server discharging the value of service on cost sharing basis definitely falls under the OIDAR service. More or less on similar facts and circumstances, this Tribunal has held in the case of Vishay Components India Pvt. Ltd. [2017 (10) TMI 453 - CESTAT MUMBAI] where it was held that 'appellant have received the service and paid consideration to BC Components International BV, Netherland therefore they are liable to pay service tax on reverse charge mechanism.' - the finding of the learned Commissioner agreed upon that the service received by the appellant is in the nature of OIDAR service. Invocation of Extended period of limitation - HELD THAT:- It is incorrect to allege that the appellant has not informed the Department about such services from the overseas company and the amount has been paid against receipt of such services. Also, they have been filing refund claims under Rule 5 of Cenvat Credit Rules. In these circumstances, it cannot be alleged that the appellant has suppressed the facts about receipt of such service from their overseas company and consequently, extended period of limitation is not invocable against them. Thus, the demand is barred by limitation. The appeal is allowed on the ground of limitation. The core legal questions considered in this appeal are twofold: (i) whether the activity of providing access to Electronic Design Automation (EDA) software tools installed on servers by an overseas holding company and accessed by the appellant for software design and development qualifies as an Online Information Database Access or Retrieval (OIDAR) service under the Finance Act, 1994; and (ii) whether the extended period of limitation for recovery of service tax is invocable in the present case.Regarding the classification of the service under OIDAR, the relevant legal framework includes the definitions under Section 65(75) and Section 65(105)(zh) of the Finance Act, 1994, as well as the definitions of 'data,' 'information,' 'electronic form,' and 'computer network' under the Information Technology Act, 2000. Section 65(75) defines OIDAR as 'providing data or information retrievable or otherwise, to a customer, in electronic form through a computer network,' while Section 65(105)(zh) defines taxable service in relation to OIDAR as 'any service provided or to be provided to any person, by any person in relation to on-line information and database access or retrieval or both in electronic form through computer network, in any manner.'The Court examined a Group Cost Allocation Agreement between the appellant and its overseas holding company, TIUSA, under which TIUSA procured licenses for EDA software tools from third-party vendors and installed these on servers located in India accessible by the appellant. The appellant paid TIUSA on a cost-sharing basis for the usage of these tools, calculated by logged-in time. The appellant contended that this arrangement was not an OIDAR service but rather a license to use software tools, which should be classified under Information Technology Software Services (ITSS) taxable only from 16.05.2008 onwards, and that no service tax was payable for the prior period.The Court analyzed the definitions of 'data' and 'information' as per the Information Technology Act, 2000, noting that 'data' includes representations of information, knowledge, facts, concepts, or instructions intended to be processed in a computer system, and 'information' includes computer programmes and software. It was observed that the software tools accessed by the appellant consist of codes and instructions-basic units that can be combined to form larger software programs. These codes and instructions qualify as 'data' or 'information' as defined, and the provision of access to such software through a computer network constitutes provision of data or information in electronic form.The Court rejected the appellant's argument that the service was merely a license to use software and not access to data or information. It emphasized that the appellant was granted access to software stored on servers via a computer network, satisfying the essential ingredients of OIDAR service: provision of data/information, in electronic form, through a computer network, to a person (the appellant). The Court also noted that the appellant and TIUSA are separate legal entities, and the appellant, by making payments for the service, qualifies as a customer under the definition prevailing during the relevant period.Supporting this interpretation, the Court referred to the Board's Circular dated 09.11.2016, which clarified that accessing or downloading software, including updates, constitutes OIDAR service. The Court also relied on precedents such as the Tribunal's decision in Vishay Components India Pvt. Ltd., where a similar arrangement involving centralized IT cost allocation and access to software services from an associated company was held to be OIDAR service liable to service tax under reverse charge mechanism. The Court held that the terminology of 'cost sharing' does not negate the existence of a service provider-recipient relationship or the payment of consideration for a taxable service.On the question of limitation, the Revenue had invoked extended period of limitation on the ground that the appellant had not furnished crucial documents-the Cost Allocation Agreement and agreements between TIUSA and international vendors-thereby suppressing facts with intent to evade service tax. The appellant countered that it had submitted the relevant agreements and details of services received to the Department in response to queries and had been regularly claiming refunds of input tax credit under Rule 5 of the CENVAT Credit Rules, 2004, which were sanctioned. The appellant argued that the Department was well aware of the nature of the services and payments, negating any allegation of suppression or mis-declaration.The Court accepted the appellant's submissions on limitation, noting that the appellant had furnished the Cost Allocation Agreement and other relevant documents to the Department and had been transparent about the services and payments. It relied on settled legal principles that extended limitation cannot be invoked where there is no suppression or mis-declaration of facts. The Court referred to authoritative precedents affirming that knowledge of the Department about the appellant's activities precludes invocation of extended limitation.In conclusion, the Court held that the services rendered by TIUSA to the appellant by providing access to EDA software tools installed on servers in India fall within the ambit of OIDAR services as defined under the Finance Act, 1994 and the Information Technology Act, 2000. The appellant, being a separate legal entity and paying consideration for the service, qualifies as a customer. The service tax liability arises accordingly. However, the demand for service tax for the period prior to 18.04.2006 is not sustainable since the liability to pay service tax on such imported services arose only after insertion of Section 66A in the Finance Act on that date. Further, the extended period of limitation is not invocable as there was no suppression of facts by the appellant.The appeal was therefore allowed on the ground of limitation, setting aside the demand for service tax, interest, and penalty for the disputed period.Significant holdings include the following verbatim reasoning:'The software said to have been purchased or procured from different vendors and stored in the servers of M/s. TIPL, is nothing but codes/instructions or basic codes of programs which can be combined at various levels to form a larger/bigger programme which are nothing but software... these bits or codes of instructions is nothing but data only, which can be combined/applied and used in any desired manner... The software and database, the access to which is provided by TI Inc to TI India is nothing but information which is defined under the IT Act, 2000. Therefore, the software provided by TI Inc clearly falls under the ambit of the said service.''M/s. TIPL is making payments to TI, USA for the services rendered by them and hence I do not find any merit in the noticee's argument that they cannot be construed as a customer to TI, USA.''The service received by the appellant is in the nature of OIDAR service.''Merely because the total cost charged by the BC Components International BV, Netherland is allocated to the various companies based on the logical basis like number of users, system usages etc., it cannot be said that appellant have not received service and paid consideration thereof.''Extended period of limitation cannot be invoked where there is no suppression or mis-declaration of facts.'