AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 1042
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....nt clients under agreements during the aforesaid period. It was also alleged that the assessee had not cared to get registered with the Department in respect of the said service or to file Service Tax returns or to pay Service Tax, all with intent to evade payment of the tax. On this basis, it was further alleged that Service Tax was leviable on the maintenance charges collected from the clients under the aforesaid agreements by invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. For the same reasons, penalties were proposed on the assessee. The demand of Service Tax and other proposals in the show-cause notice were contested in a detailed reply filed by the assessee. It was in adjudication of this dispute that the Commissioner passed the impugned order. 2.0 We have heard both sides and considered their submissions. The levy of Service Tax on 'maintenance or repair' service was introduced w.e.f. 01.07.2003. At the outset, we shall reproduce the definition of "maintenance or repair" given under Section 65(64) of the Finance Act. Prior to 16.06.2005, this definition stood as follows:- "Section 65(64) "maintenance or repair" mea....
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....n this connection, it has been submitted by the learned Special consultant for the Revenue that the Circular dated 17.12.2003 was superseded by Circular No. 81/2/2005-S.T., dated 07.10.2005 wherein maintenance or repair or servicing of software was held to be exigible to Service Tax under Section 65(105) (zzg) read with Section 65(64) of the Finance Act, 1994. In this connection, the learned Consultant has also referred to the Hon'ble Supreme Court's decision in Tata Consultancy Service vs. State of Andhra Pradesh [2004 (178) ELT 22(SC)] wherein their lordships held that software (whether canned/branded), in any medium, should be "goods". In this connection, he has also pointed out that one of the members of the Constitution Bench had gone to the extent of holding that even customized software would satisfy the attributes of "goods". It is further submitted that this view was followed with approval in the case of Bharat Sanchar Nigam Limited vs. Union of India [2006 (3) SCC 1, which, in turn, was followed by the Madras High Court in the case of Infosys Technologies Ltd. vs. Special Commissioner and Commissioner of Commercial Taxes and another [2008] 017 VST 0256. He has als....
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....troduced w.e.f. 16.05.2008. 3.3 In the face of the above arguments of the counsel, the learned Special Consultant for the Revenue has referred to a technical literature on the subject. He has quoted from "SOFTWARE ENGINEERING - A PRACTITIONER's APPROACH" (Fourth Edition) by Roger S. Pressman. It has been submitted that maintenance of computer software can be categorized as corrective, adaptive, perfective and preventive depending on the nature of the activity. These categories of software maintenance are covered by the so-called "ERP maintenance and upgradation activities". It is submitted that these services are normally rendered after release or installation of the software in the customer's computer system. The learned Consultant has submitted in response to queries from the Bench that, in the ERP regime, maintenance of software would consequentially follow planning and implementation. It is submitted that ERP implementation may require some maintenance. Broadly speaking, according to the learned Consultant, the aforesaid categories of maintenance are done once the installed/implemented software goes "live", The gist of submissions of the learned Consultant is that wh....
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.... by this Tribunal by Final Order No. 261/2007 dated 23.02.2007, against which the Department's appeal No. 133/2007 is pending before the High Court of Karnataka. The learned Counsel has further pointed out that a similar issue for the period 01.04.2000 to 31.03.2001 arising out of show-cause notice No. 2970/2005 dated 06.05.2005, is also pending before the Hon'ble High Court. It has also been pointed out that, like show-cause notice No. 2923/2007 dated 13.04.2007, a subsequent show-cause notice No. 177/2008 dated 21.10.2008 involving the period 01.04.2007 to 31.03.2008 and involving the same issue is also pending adjudication. The gist of all these submissions is that the Department issued show-cause notices not only for certain periods prior to and after the period of dispute involved in the case, but also for a part of the period of dispute demanding Service Tax from the assessee under the head "management consultancy service", in respect of the same activities viz. software licensing, maintenance, consulting and training. It has been pointed out that software maintenance was also sought to be taxed under the head "management consultancy service" for different periods whe....
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....t is also submitted that the material fact was not disclosed by the assessee at any stage during the period of dispute. They did not file any return during the said period covering the maintenance charges collected by them from their customers in respect of the software maintenance. Moreover, they had not taken steps to obtain registration with the Department in respect of the service. Necessary steps were taken only after the investigations by DGCEI commenced. In the circumstances, there can be no valid objection to invocation of the extended period of limitation. 5.0. We have given careful consideration to the submissions. A profile of the activity undertaken by the appellant was given by the learned Special Consultant for the Revenue. Accordingly, what was done by the appellant in terms of the relevant agreements (end-user licence agreements) was rendering of various services in relation to the software already installed in computer systems and made operational. According to a literature filed by the learned Special Consultant, ERP maintenance is defined as post-implementation activities undertaken from the time the system goes live until it is retired from production. Anothe....
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....e of Tata Consultancy Services (supra), BSNL (supra) and Infosys Technologies (supra), the view taken was that software in any media would also be "goods". The question whether maintenance or repair of software was a taxable service within the ambit of Section 65 (64) of the Finance Act, 1994 was not apparently considered in any of those cases. That software (branded or customised) has the attributes of "goods" is just a postulate for us and we shall proceed accordingly. Maintenance or repairs of goods will not normally result in upgradation of its value or functional capacity or efficacy to higher levels than what originally existed. But maintenance of software, as per technical literature, can improve its applicability to new functional areas to benefit the customer thereby enhancing its functional capacity/efficacy and value. Perhaps, the only category of maintenance referred to by the learned Special Consultant, which may compare with maintenance of tangible goods, is corrective maintenance. Other categories like adaptive maintenance and perfective maintenance (enhancement) cannot be limited to the scope of maintenance of goods. Therefore, in our considered view, the expression....
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....use. "goods" includes "computer software". This explanation was amended w.e.f. 16.05.2008 as follows:- "For the removal of doubts, it is hereby declared that for the purposes of this clause - (a) "goods" includes "computer software" (b) "properties" includes" information technology software". (underlining added) In this context, we think, we must also reproduce the full text of Section 65(64) as it stands post-16.05.2008. "Section 65(64) "maintenance or repair" means any service provided by- (i) any person under a maintenance contract or agreement; or (ii) a manufacturer or any person authorized by him, in relation to, -- (a) management of properties, whether immovable or not; (b) maintenance or repair of properties, whether immovable or not; or (c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle." (underlining added) 5.5. Going by the explanation (supra), we find from the above text of Section 65(64) that maintenance or repair of information technology software is specifically covered under sub-clause (b) whereas mai....