2026 (3) TMI 911 - AT - Service Tax

Import of Services: electronically supplied software under high sea sales treated as taxable import where receipt occurs after levy.

Recorded software supplied on physical media is characterised as goods, not taxable as service; the service tax demand on CDs is set aside. Electronically ... Taxation of Services (provided from outside India and received in India) - Import of services - Demand of service tax on import of software through Compact Disc and software electronically downloaded - liability to pay service tax on the software purchased from Indian vendors on high seas sale - services received prior to 16.05.2008 and the payments made on 12.08.2008 i.e. prior to 16.05.2008 - invocation of extended period - Whether software imported in Compact Disc (CD) is leviable to service tax. Levy of service tax on software supplied in Compact Disc form - HELD THAT: - The worksheet enclosed along with the show-cause notice clearly shows that compact disc has been imported in six instances and in all other cases, it is an electronic download. We find that with regard to these compact discs, it is a settled law that they are ‘goods' and as rightly contested by the appellant, the Supreme Court in the case of Tata Consultancy Services [2004 (11) TMI 11 - SUPREME COURT (LB)] has categorically held there are ‘goods’ and therefore, we do not find any reason to levy service tax on the goods, accordingly, the impugned order to the extent of demanding service tax on the Compact Disc is set aside. Demand of service tax on software imported in Compact Disc form is set aside. Levy of service tax on electronically downloaded software imported under high-sea sale arrangements - HELD THAT: - The Tribunal found that where the ultimate source and developer of the software are foreign service providers who supply the right to use software to the appellant, and the appellant has filed Bill of Entry and discharged customs duties, the transaction constitutes import of services under Section 66A and the Import of Services Rules. High-sea sale (transfer of title while goods are at sea) did not alter the character of the import; hence service tax demand on electronically imported software under high-sea sale was upheld. [Paras 7] Service tax demand on electronically imported software received under high-sea sale is confirmed. Liability for software received before 16.05.2008 despite payment made after that date - HELD THAT: - The Tribunal applied the principle that the taxable event is the rendering or receipt of the taxable service. Where the software was received prior to 16.05.2008 (date from which ITSS became taxable), subsequent invoicing or later payments do not create liability. On the facts, software imported prior to 16.05.2008 is not taxable even though payment fell due or was made after that date. [Paras 8, 9] Service tax demand on software received prior to 16.05.2008 is set aside notwithstanding later payments. Validity of invoking extended period of limitation for demand covering 16.05.2008 to 31.03.2010 - HELD THAT: - The Tribunal observed that the show-cause notice and the appellant's own reply established that the appellant was aware of its liability to discharge service tax on electronically downloaded software for the period 16.05.2008 to 31.03.2010. The appellant's contention that imports via high-sea sale negated liability did not demonstrate bona fides sufficient to defeat invocation of the extended period; accordingly the extended period was held to be rightly invoked for that period. [Paras 10, 11] Invocation of the extended period for the period 16.05.2008 to 31.03.2010 is sustained and the demand for that period is upheld. Final Conclusion: The Tribunal set aside service tax demands on Compact Disc imports and on software received prior to 16.05.2008, confirmed service tax on electronically imported software under high-sea sales for 16.05.2008-31.03.2010, upheld invocation of the extended period, and remanded the matter for redetermination of tax, interest and penalty. Issues: (i) Whether software imported in Compact Disc (CD) form is leviable to service tax; (ii) Whether electronically downloaded software imported under high sea sales is liable to service tax as import of services under Section 66/66A and the Taxation of Services (Provided from outside India and received in India) Rules, 2006; (iii) Whether software received prior to 16.05.2008 is taxable where payments were made after 16.05.2008; (iv) Whether invocation of the extended period of limitation for assessment of service tax on electronically downloaded software imported under high sea sales is justified.Issue (i): Whether software imported in Compact Disc (CD) form is leviable to service tax.Analysis: The Tribunal examined the nature of compact discs containing software and applied the goods-versus-services tests previously laid down by the Supreme Court. The record showed specific instances of CDs imported and the settled law treating recorded software on physical media as goods was applied.Conclusion: The demand of service tax on software imported in Compact Disc form is set aside in favour of the assessee.Issue (ii): Whether electronically downloaded software imported under high sea sales is liable to service tax as import of services under Section 66/66A and the Taxation of Services (Provided from outside India and received in India) Rules, 2006.Analysis: The Tribunal considered the contractual and transactional facts showing that foreign suppliers developed and licensed the software and that the appellant filed bills of entry and paid customs duties, establishing import. Section 66/66A and the Rules governing import of services were applied to determine liability for services provided from abroad and received in India. The Tribunal also reviewed the Commissioner's findings that the foreign entities retained the characteristics of service providers and supplied rights to use software as per specifications.Conclusion: The demand of service tax on electronically downloaded software imported under high sea sales for the period 16.05.2008 to 31.03.2010 is confirmed against the assessee.Issue (iii): Whether software received prior to 16.05.2008 is taxable where payments were made after 16.05.2008.Analysis: The Tribunal examined purchase orders, payment schedules and precedents holding that the taxable event for service tax is the rendering/receipt of the taxable service. Where the service was rendered prior to the date on which the relevant service became taxable, subsequent invoicing or payment does not create liability. The facts showed receipt of certain software prior to 16.05.2008 and a multi-year payment schedule consistent with earlier delivery/receipt.Conclusion: The demand of service tax for software received prior to 16.05.2008 is set aside in favour of the assessee.Issue (iv): Whether invocation of the extended period of limitation for assessment of service tax on electronically downloaded software imported under high sea sales is justified.Analysis: The Tribunal considered the date and content of the show-cause notice and the appellant's replies showing that the appellant had discharged service tax on certain imports for the relevant period and was aware of potential liability. The Tribunal applied limitation principles to the facts and evidence of knowledge and non-payment to assess whether extended period invocation was warranted.Conclusion: Invocation of the extended period of limitation for the demand on electronically downloaded software imported under high sea sales is justified and the demand for the period 16.05.2008 to 31.03.2010 is sustained.Final Conclusion: The appeal is partly allowed by setting aside the service tax demand (and penalty) relating to software imported on Compact Disc and software received prior to 16.05.2008, and by confirming the service tax demand (with remand for redetermination of tax, interest and penalty) on electronically downloaded software imported under high sea sales for the period 16.05.2008 to 31.03.2010.Ratio Decidendi: Software supplied on physical media (compact disc) constitutes goods and is not liable to service tax; electronically supplied/licensed software imported from abroad constitutes import of services under Section 66/66A and the Taxation of Services (Provided from outside India and received in India) Rules, 2006 and is taxable where the taxable event (rendering/receipt) occurs on or after the date the service became taxable; subsequent invoicing or payment after the taxable date does not create tax liability for services whose taxable event occurred prior to the levy becoming effective.