TaxTMI 
TaxTMI 
2018 (9) TMI 1281
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.... show-cause notices under cover by the adjudication order are as follows:- Table 1 Show Cause Notices adjudicated by the impugned order Show Cause Notice Date Period Demand under Taxable Service 19/10/2009 1.4.2004 to 31.3.2009 Maintenance & Repair 20/10/2010 1.4.2009 to 31.3.2010 Information Technology Software 21/10/2011 1.4.2010 to 31.3.2011 Information Technology Software 22/10/2012 1.4.2011 to 31.3.2012 Information Technology Software 2.2 While remanding the matter back the Tribunal has in its earlier order observed as follows:- "4. We have considered the submissions made by both the sides. We have also perused the impugned order. From the impugned order, it does not come out clearly how the Service Tax liability has been computed. If the appellant has purchased from third parties and sold the same on payment of VAT and also supplied hardware on payment of VAT, the same would not be liable to service tax. The liability to service tax would arise only in respect of software which the appellant has developed as per customer's specifications and supplied to their customers. Therefore, there is a need to go throu....
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....1 was issued demanding Service Tax under the category of "Maintenance and Repair Services", in the first round of adjudication Commissioner had confirmed the demand under the category of "Maintenance and Repair Services" uptil 15.05.2008 and from 16.05.2008 under the category Information Technology Software Services. In the remand proceedings Commissioner has confirmed the demand under the category of "Intellectual Property Right" services up till 15.05.2008 and from 16.05.2008 under the category of Information Technology Software Services. Since the adjudication order has in case of this show cause notice demanded the service tax under the category which were never in dispute in Show Cause Notice, the order is bad in law. [Mahakoshal Beverages Pvt Ltd. Vs, CCE (2006) 6 STR 148 (T-Bang)] & [Glass Fibres vs CCE (2010) 18 STR 726 (T-Bang)] (b) The impugned order has gone beyond the scope and directions of the Tribunal in remand order dated 14.01.2013 for demand of service tax on sale of software and hardware. Hence, to the extent of Rs. 42,57,55,464/- for the period 01.04.2004 to 31.03.2012 is unsustainable. The tribunal earlier decision to this effect as it has not....
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....on 51) which has an overarching effect over all other laws. Further exemption Notification No. 9/2009-S.T. dated 03.03.2009, also exempts the services provided to SEZ Unit/ Developer. [Intas Pharma Vs CST (2013) 32 STR 543 (Tri- Ahmd)], {M/s Reliance Port & Terminals Ltd vs CCE & ST [(2013) TIOL 1473 CESTAT-AHM] & Tata Consultancy Services Ltd Vs CCE & ST [(2013) 29 STR 393], Trimurthy Industrial Cooperative Society Ltd Vs CCE [2018 TIOL 206 CESTAT MUM} & DHL Lemuir Logistics Pvt. Ltd. Vs CCE 2017 (47) STR 309 (T-Mum)] (h) In respect of Octroi charges in service tax is not demandable as these are essentially in relation to the sale of hardware. Octroi is a tax paid to bring goods into a state and is not in the nature of consideration for any services and hence not liable to tax. (i) Services rendered in Jammu & Kashmir are rendered outside the taxable territory and hence are not liable to service tax. 6. Replying to the contentions of the appellant learned D.R. made submissions as follows:- (a) In respect of show-cause notice No.1, though the show-cause notice has been issued under the category of 'management, maintenance and repair service, demand has....
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....ability to service tax would arise only in respect of software which the appellant have developed as per customers' specification and supplied to customer. Matter was remanded to AA for going through the agreement, bills raised and payment towards service tax liability under "Information Technology Services." As per appellants' reply dated 11.11.13 demand on account of sale of 3rd Party software is Rs. 10.2 Crores, whereas demand on account of in house developed software, development and customization of software is Rs. 51.37 Crores. As per them, sale of software is not provision of service. Further customization of software as per client's specification is not "maintenance or repair service". Software development (including up-gradation, implementation etc) has been included under ITSS wef 16.05.2008. (g) As per Circular dated 07.10.2005 and 07.03.2006, software being goods, any service in relation to maintenance, repair or servicing of software will be liable under 'Maintenance or repair service". (h) The decision of Hon'ble Supreme Court in the case of Tata Consultancy Services - 2004 (174) ELT 22 (SC) is not applicable in the present case as ....
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.... a. It does not show that software is sold through CD only. After software installation CD has hardly any value and Software needs periodic up-gradation. b. In case of customization at client's site, definition of goods is not relevant. (m) In case of Safety Retreading [2017 (46) STR 97 (SC)], the facts were different in as much as Revenue wanted to charge tax on 100% value which includes material portion. From para 11, 12, & 13, it is clear that service portion 30% defined under local Act was never challenged in the SCN nor the invoice showing breakup of material and service portion was disputed in order and the affidavit filed before Court. It cannot be applied in present case. (n) As appellant did not seek any clarification from department and there was failure to disclose position in ST-3 returns, there was suppression and hence extended period has been correctly invoked. For which reliance has been placed on CCE v. Reliant Advertising [2013 (31) STR 166 (Tri-Del) and Vodafone Digilink Vs CCE [2013 (29) STR 229 (Raj)]. (o) In case of demand of Service Tax under Section 73, it is not required to prove that the nonpayment of tax was with int....
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....ause 2.1 is to clearly demarcate that what is being sold is a copy of copyrighted article and not software along with the copyright. Since the appellants have transferred the right of ownership (i.e. sale) in the copy of computer programme to the customer for a consideration thus resulting in sale of the CD containing a software. v. Software development agreement dated 6.05.2002 with ICICI Webtrade, is for development of customized Software development service and falls under the category of Information Technology Software Service (ITSS) after 16.05.2008 and liable to service tax. Since this service was notified as liable to service tax from 16.05.2008, they have paid the service tax in respect of these services with effect from that date. vi. Apex Court decision in case of Tata Consultancy Services [2004 (178) ELT 22 (SC)] is relevant both prior to and after 16.05.2008 and the sale of copy of computer programme would still be sale of goods and not services. vii. It is intention of the parties to sell a copy of the software so that the property in the copy passes to the buyer and hence it is sale. viii. In view of the decision of Karnataka High C....
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....ll as Revenue. The issues for consideration can be put across in four or five points. 10.1 Whether the order-in-original while confirming the demand raised by the first three show-cause notices have travelled beyond the scope of remand order or Commissioner was right in confirming the said demand as has been done by him. While remanding the matter back, the Tribunal has made observation which have been reproduced above in para 3. As per the said observation it is clear that the direction was to both the agreements entered into with the clients, bills raised for the service rendered and the goods supplied and the payment made towards service tax liability under the category of 'Information Technology Service'. Only after going through all these documents, correct service tax determination was to be done and matter was remanded for taking into account of documentary evidences which would submit in support of their claim of having discharged of service tax liability. While passing the order, Commissioner has done the same. He has considered looking into agreements and has concluded what he deemed fit in respect of leviability of service tax. The remand order does not conclude anyth....
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....Noticee to enter into License Agreement. 24 It is thus observed that Oracle and other software developers only license the software for use by the end user subject to the terms and conditions of the agreement, thereby giving the right to use the software, which includes the right to install, run and get updates. As per the terms and conditions of the agreement, the end user is neither permitted to tamper / modify the software nor is allowed to sell the same, as the ownership and intellectual property rights remain with Oracle. Such right to use of the software does not amount to sale of software. There will be sale of software only if source code and entire property in software is transferred to buyer." 10.3 The argument on merits advanced by the appellant is with regards to the decision of the Hon'ble Apex Court in the case of Tata Consultancy Services. Relying on the said decision they have argued that the third party software supplied by them are nothing but sale of copy righted article and hence sale of goods leviable to VAT hence cannot be leviable to service tax. There is no law which provides that levy of VAT bars to levy of service tax. On the contrary if author....
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.... dated 09.05.2007 and 22.05.2007, respectively, the Noticee have supplied Citrix software License and Oracle software License to Kisan Group of companies. • Vide Invoice No. MNV-MUM-20902, dated 13.09.2007 and MNV-MUM-23048, dated 21.03.2008 the Noticee have supplied Oracle ASFU Standard One Edition Single Processor Base License to M/s. SISCO Research • Laboratories Ltd. and M/s. Pratibha Industries Ltd. • Vide Invoice No. INV-MU&M-6100002769 dated 30.09.2008, the Noticee have billed M/s. Nippon Data Systems for supply of software License and Product support. • Vide Invoice No. INV-DEL-6100002853 dated 09.10.2008 and INV-DEL-6100002881 dated 10.10.2008 the Noticee have billed M/s. Softcell Technologies for supply of Hyperion Pre System 8.3.2 Intelligence Explorer with support. • Vide Invoice No. INV-MUM-6100003848, INV-MUM-6100003850, INV-MUM-6100003852, INV-MUM-6100003857, INV-MUM-61000072, INV-MUM-6100005281-84 and INV-MUM-6100005857 the Noticee have supplied Oracle Standard Edition software - 5 user Licenses. • Vide Invoice No. INV-MUM-6111001979 dated 22.06.2010, one server license is sold to M/s. J.B....
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....ith the said developer of software and the end user were only using the data contained in the software in furtherance of their business. In other words, the said software developers had only transferred the right to use the software temporarily. The Noticee acted as an intermediate on behalf of the software developers in transferring the intellectual property right. As such, the Noticee, being the 'holder' of the intellectual property right by way of the agreement entered by them with the software developers like oracle, are the provider of the 'intellectual property services', defined under Section 65(55b) of the Finance Act, 1994 read with Section 65(105)(zzr) ibid. Even in respect of the software developed in-house or customized software, as brought out in the above paras, the Noticee were only transferring the right to use the program contained in the software and the intellectual property rights and ownership of such software supplied to the customers, remained with the Noticee only. Thus, even in respect of the supply of software developed inhouse or customized software, the services provided by the Noticee are classifiable under the category of the 'intellectual pro....
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....sue when a new entry is introduced covering a particular activity without amending the earlier entry, whether the earlier entry can cover the subsequently introduced entry, was examined by the Larger Bench of Tribunal, Mumbai, in this case. The Appellant contended that in such cases it cannot be said that the earlier entry covered subsequently introduced entry. Hon'ble CESTAT observed that this proposition may be true in certain situations and not in other situations. In this case demand of Service Tax was issued classifying the service provided under Business Auxiliary Service for the period 01.07.2003 to 31.12.2005. The assessee in this case had been paying Service Tax suo moto with effect from 01.05.2006 under Support Services of Business & Commerce. This service has been notified as a separate taxing service with effect from 01.05.2006. Hon'ble Tribunal held that the services provided by the assessee are covered under Business Auxiliary Service at the time when the Business Support Service was not in existence. The relevant portion of the CESTAT's order are reproduced below- "Para 12. Ld. Counsel has given a lot of emphasis and cited certain judgments to argue the poin....
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....wners Association vs. UOI reported in 2009 (14) S.T.R. 289 (BOM), the Hon'ble Mumbai High Court was considering the question whether marine logistics servicesoffshore support vessels, marine construction barges and harbor tugs provided to exploration and production companies would get covered under supply of Tangible Goods service from 16.05.2008 or under mining service prior to that date. It is in this context that they had made observation relating to the said two entries. In fact, in this case, the Supreme Court had observed that the nature of work that was required to be carried out could not be strictly said to be a service in relation to mining of mineral, oil or gas. It is in this context that the Court has made certain observation. Another case cited by the Ld. Counsel is Cameo Corporation Services Ltd. Vs. Commr. Of Service Tax, Chennai, reported in 2008 (11) S.T.R. 161 (Tri. Chennai). In this case, the issue before the Tribunal was, whether Share Transfer Agent service which was introduced with effect from 01.05.2006 could be covered under Business Auxiliary Service prior to that date. Share Transfer Agents are a separate category and they do the work of their own and reg....
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....chnology software' service has been carved out and defined separately under Section 65(53a) and taxable in terms of Section 65(105)(zzzze) ibid, wherein such right to use the software has been specifically included in the aforesaid service, taxable with effect from 16.05.2008. 51. In view of the clarification of CBEC given vide the above said circular dated 29.02.2008, so far as first Show Cause Notice dated 19.10.2009 is concerned, the services provided by the Noticee in respect of the supply of the third party software and the software developed in-house or the customized software, wherein the Noticee had temporarily transferred the right to use the software to their clients for consideration, are classifiable under the category of 'Intellectual Property Services' for the period prior to 16.05.2008 and with effect from 16.05.2008 the said services are classifiable under the separately specified category of 'Information Technology Software services'. 52. The show cause Notice dated 19.10.2009 has classified the impugned services provided by the Noticee under the category of 'Management, Maintenance or Repair Services' for the period from April 2004 to 16.05.2008.....
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....lly, the work for development of guidance in respect of application of Article 12 on software payments originally appears in a report titled "Software: An Emerging Industry" that was published by the OECD in 1985. The recommendations made in Appendix 3 of the "Software: An Emerging Industry" for changes in Commentary on Article 12 led to the insertion of the paragraphs 12 to 19 of the OECD Commentary on Article 12. These changes were the first major guidance included in the Commentary on Article 12 in respect of software payments. 2. The second set of further guidance that was subsequently incorporated and continues to remain as existing guidance was adopted on the basis of another report titled "The 2000 Update to the Model Tax Convention" adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, leading to modification of some of the paragraphs and insertion of paragraph 12, 12.1, 12.2, 13.1, 14, 14.1, 14.2, 14.3 and 14.4 in the OECD Commentary. 3. The third set of major changes in this guidance resulted from the recommendations made in the OECD report titled "Treaty characterization issues arising from E-Commerce" which was adopted by the OECD Committee....
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.... the public. It is recognized that the grantor is not required to play any part himself in the application of the formulae granted to the licensee and that he does not guarantee the result thereof. 11.2 This type of contract thus differs from contracts for the provision of services, in which one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. Payments made under the latter contracts generally fall under Article 7 or in the case of the United Nations Model Convention Article 14. 11.3 The need to distinguish these two types of payments, i.e. payments for the supply of know-how and payments for the provision of services, sometimes gives rise to practical difficulties. The following criteria are relevant for the purpose of making that distinction: Contracts for the supply of know-how concern information of the kind described in * paragraph 11 that already exists or concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. In the case of contracts for the provision of services, the supplier....
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....mited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user's computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by th....
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....eing distributed are delivered on tangible media or are distributed electronically (without the distributor having the right to reproduce the software), or whether the software is subject to minor customization for the purposes of its installation. 15. Where consideration is paid for the transfer of the full ownership of the rights in the copyright, the payment cannot represent a royalty and the provisions of the Article are not applicable. Difficulties can arise where there is a transfer of rights involving: * exclusive right of use of the copyright during a specific period or in a limited * geographical area; additional consideration related to usage; * consideration in the form of a substantial lump sum payment. 16. Each case will depend on its particular facts but in general if the payment is in consideration for the transfer of rights that constitute a distinct and specific property (which is more likely in the case of geographically-limited than timelimited rights), such payments are likely to be business profits within Article 7 (or 14 in the case of the United Nations Model Convention) or a capital gain within Article 13 rather t....
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....". 17.3 This is the case for transactions that permit the customer (which may be an enterprise) to electronically download digital products (such as software, images, sounds or text) for that customer's own use or enjoyment. In these transactions, the payment is essentially for the acquisition of data transmitted in the form of a digital signal and therefore does not constitute royalties but falls within Article 7 or Article 13, as the case may be. To the extent that the act of copying the digital signal onto the customer's hard disk or other non-temporary media involves the use of a copyright by the customer under the relevant law and contractual arrangements, such copying is merely the means by which the digital signal is captured and stored. This use of copyright is not important for classification purposes because it does not correspond to what the payment is essentially in consideration for (i.e. to acquire data transmitted in the form of a digital signal), which is the determining factor for the purposes of the definition of royalties. There also would be no basis to classify such transactions as "royalties" if, under the relevant law and contractual arrangements, th....
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....ds, will be obviously classifiable as service, notwithstanding the predominant nature of goods. Therefore, the Noticee's contention that it is the case of sale of goods is not legally sustainable. 37. However, while charging the clients for the said services rendered, the Noticee have artificially split the costs, one towards materials consumed while providing the said services and the second towards the service charges. As mentioned above, there is nothing on record to show that the sale of Computer hardware items were stand alone transactions. On the contrary the material evidence on record, few of which have been discussed above, clearly show that these Computer Hardware items were consumed while providing the impugned services. Thus, the computer hardware items were essential for provision of the impugned services, which evidently have been consumed while providing the said services. Provider of taxable service is entitled to take credit of excise duty paid on excisable goods received for use in the provision of services." 10.11 After examining the contentions raised by the party, it is the fact that the Commissioner has held that the hardware goods have not been pr....
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....e of goods is shown separately. However when the goods are sold as part of provision of service and are shown separately then will the abatement in respect of the same shall be admissible or not needs to be considered. Notification No 12/2003-ST provided for such abatement. While concluding the with regards to the hardware when commissioner has upheld that they are the part of taxable service and their value should be included in the value of taxable services provided, Commissioner needs to consider the argument in respect of the abatement of the value if admissible under rules or notification applicable at the relevant time. 10.13 In respect of Commissioner confirming the demand under the category of Intellectual Property Services for period prior to 16.05.2008 and under the category Information Technology Services from 16.05.2008 in respect of 1st show-cause notice party has relied upon the decisions in the following cases to argue that such confirmation of demand is not tenable:- (i) Mahakoshal Beverages Pvt. Ltd. v. CCE, (2006) 6 STR 148 (Tri. - Bang.) affirmed by Karnataka High Court in CCE vs. Mahakoshal Beverages Pvt. Ltd(2014) 33 STR 616 (Kar) (ii) B....
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....is seen that during the period 01.09.2010 to 29.03.2011, the Notice have raised 44 invoices for a total amount of Rs. 13,60,00,000/- on M/s. Geodesic Ltd., situated in SEEPZ, Mumbai, towards services names as 'Maintenance Management Module', 'Inventory & Purchase Module', 'Sales & Marketing Module', 'Production Management Module', 'Quality Management Module' and 'Project Management Module'. Specifically these services are in relation to the software services and hence are leviable to service tax. In terms of Notification No. 9/2009-ST granted exemption to the specific services supplied to SEZ subject to condition that person liable to pay service tax shall pay service tax as applicable on the specified services provided to the developer or units of SEZ and SEZ shall claim refund of service tax on the services provided to the developer of SEZ. Notification No. 9/2009-S.T was substituted by Notification 17-2011-ST which provided exemption from service tax subject to condition specified therein. One of the conditions specified was that the exemption shall be provided by way of refund of service tax. Accordingly, during the entire period the service provider is not eligible for firs....
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....s under exempted / not leviable to service tax have been left blank. Thus they are only suppressed the information in respect of these amounts being calculated by them. When under no statute and obligation has been passed to disclose the entire amounts recovery and thereafter bifurcation in respect of exempted goods not taxable and taxable amounts not declaring of the same shall amount to suppression with intention to evade the taxes. Since the entire demand raised by the show cause notice prior to 16.05.2008 is not maintainable as no notice has been issued under the category in which this demand is sought to be made and confirmed, this ground loses relevance both for the appellant and respondents. 10.20 As the demand of taxes is liable to be confirmed for the period after 16.05.2008 appellant are required to pay the interest also. It is settled law that interest liability flow from the liability to pay tax if not paid in time as per the decision of the Hon'ble Supreme Court in the case of Commissioner of Trade Tax, Lucknow v. Kanhai Ram Thekedar - 2005 (185) ELT 3 (S.C.). 10.19 Now coming to the question of penalty that have been imposed. For contesting the penalty, the a....