AI Drafter 
TaxTMI 
TaxTMI 
2023 (11) TMI 101
X X X X Extracts X X X X
X X X X Extracts X X X X
....to Rs 2,33,54,306/- (Rupees two crore thirty three lacs fifty four thousand three hundred and six only) against M/s Computer Science Corporation India Pvt. Ltd C-29 Sector 55, Noida under Section 73 (1) of Finance Act, 1994. 2. I order to recover the above said confirmed amount along with appropriate rate of interest as provided under Section 75 of Finance Act, 1994. 3. I impose a penalty of Rs 2,33,54,306/- (Rupees two crore thirty three lacs fifty four thousand three hundred and six only) against M/s Computer Science Corporation India Pvt. Ltd C-29 Sector 55, Noida under Section 76, 77 and 78 of Finance Act, 1994." 2.1 Appellant is engaged in providing IT support services to its clients in and outside service. The nature of services provided are: a. Installation or implementation of customized software; b. Customization of software to be installed; c. Development of patches or intermediary software which enable the main software to run smoothly onto the operating system environment of the client; d. Up-gradation of installed software with newer versions, and e. Enhancement or modification of software by either open....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iod as per proviso to Section 73(1) to make this demand. All the facts came in the knowledge of the revenue in September 2008 [Notice C No 1/(1) Audit AG-XII/ Noida/2008-09 dated 02.09.2008]. Therefore extended period could not have been invoked. 3.2 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order. 4.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments. 4.2 For holding against the appellants, impugned order records following findings: "I find that there is different perception between department and party relating to classification of the service provided by the party during the year 2006-07. The party's submission is that their service falls under "Information Technology Software Service" and therefore they were not liable to p-ay service tax prior to the period 2008. Since the demand pertains to 2006-07 and at that time repair & maintenance service was chargeable to tax under service tax regulations therefore I would like to examine the definition for its applicablityin this case during the relevant period. Repair and maintenance s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dated 17.12.2003 categorically exempted the service tax on software maintenance and the said circular was rescinded by circular no 93/04/2007 dated 10.07.2007. They have further submitted that as soon as the circular dt 17.12.2003 was rescinded vide circular dt. 10.07.2007 they started paying service tax and thus service tax for the period 2006-07 is not payable by them. However, I donot find any force in party's submission in view of the decision of Hon'ble Supreme Court in case of M/s Tata Consultancy Services Vs State of Andhra Pradesh [2004 and VCBEC Circular No 81/2/2005-ST dated 07.10.2005, which was issued in supersession of all the previous circulars. The said Circular provides that "2. Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh (Civil Appeal no 2582 0f 1998) has observed that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore, sale of computer software falls within the scope of sale of goods. Supreme Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore the same is liable to be recovered from them under Section 73 (1) of the Finance Act, 1994 along with interest under Section 75 of the said Act. From the facts of the case and other records I find that the aprty never informed the department about maintenance and repair services being provided by them to their clients in relation to software during the year 2006-07, hence suppressed this vital fact from the department with intent to evade payment of service tax. From the facts of the case and the bills issued by the aprty I find that even when they started paying service tax in 2007, they issued the bills under the category "T & M billing" wherein the bill was raised on the vbasis of pre-agreed per hour rates which shows that they were still hiding the true nature of services being provided by them. Therefore I am of the view that the extended provisions of proviso to Section 73 (1) of the Finance Act, 1994 has rightly been invoked for recovery of the service tax not paid by the party." 4.3 Appellant have relied upon series of decisions to argue that the services provided by them are not taxable under the taxable category of "Management, Maintenance and Repair Servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve considered the submissions made by Learned Counsel for the parties and have perused the record. For the facility of reference, paragraphs 6, 7 and 8 of the decision rendered by High Court of Madras in Kasturi and Sons is reproduced for the facility of reference : 6. Admittedly, it is under the Finance Act, 2007, with effect from 1-6-2007, the term 'goods' has been expressly made to include computer software. But earlier in the Finance Act, 2003 in which the terms, 'business auxiliary service' and 'maintenance or service' were introduced for the first time. There was specific exclusion of information technology service including maintenance of computer software from the purview of business auxiliary service. The term 'business auxiliary service' as introduced in the Finance Act, 2003 with explanation contained therein is as follows : 65(19) "business auxiliary service" means any service in relation to - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; (iii) any customer care service provided on behalf of the client; or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices including computer consultancy services. As part of their business they prepared and laded on customers' computers custom-made software ("uncanned software") and also sold computer software packages off the shelf ("canned software"). The canned software packages were of the ownership of companies/persons who had developed those software. The appellants were licensees with permission to sub-license those packages to others. The canned software programs were programs like Oracle, Lotus, Master Key, N-Export, Unigraphics, etc. The question raised in this appeal was whether the canned software sold by the appellants could be termed as "goods" and as such was assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1947. And ultimately answered as follows : "There is no error in the High Court holding that branded software is goods. In cases of both branded and unbranded software the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed etc. Thus even unbranded software, when it is marketed/ sold, may be goods. However, this aspect is not being dea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n concerned with the taxation under the category of repair and maintenance service, the issue in case of Kasturi & Sons was in respect of taxation under the category of "Business Auxiliary Service" as has been noted in the order of Hon'ble High Court. Hon'ble High Court did not decide the issue in respect taxability under the category of Management Repair and Maintenance Services but had observed that the circular issued giving retrospective effect to the amendments made by Finance Act, 2007, cannot be upheld and the same should have no application while deciding the cases for the past period. The relevant paragraphs of this decision are reproduced below: "9. While deciding the same, there was no occasion to consider the implications of the Finance Act 2003 to 2006 in respect of the terms 'information technology' and 'maintenance of software' and the decision rendered in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308] in the context of the said Act under Entry 54, List-II of VII Schedule to the Constitution cannot be cited for a clarification in respect of the Finance Act, 1994 which is a Parliamentary enactment. 10. The Supreme Court held i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 (Mad)] to the effect that the circular cannot interfere with the powers of the quasi-judicial authority in applying the statutory provisions. J. Kanakaraj, J. (as He then was) observed in this regard as follows : "19. The last point which has to be decided is whether the first and third respondents have jurisdiction to issue such circulars which bind the quasi-judicial authorities without leaving any room for exercising their quasi-judicial powers. The respondents can take umbrage, only under Section 37(B) of the Act. Sri K. Parasaran argues that Section 37(B) should be to the classification of excisable goods or with reference to levy of duties of excise on such goods. In other words, it is argued that the words "all such goods" are relatable only to the classification of excisable goods. If the argument of the revenue with regard to the scope of Section 37(B) is accepted, it will only mean that the second respondent can give any direction to any of the statutory authorities and direct them to impose duty in a particular manner. I am clearly of the opinion that could not have been the intention of the legislature. The quasi-judicial authorities are certainly supposed to....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "22. We find no merit in the above contentions. At the outset, it may be stated that in the case of field latex there is 60% water and 40% is the rubber content. On the other hand, centrifuged latex produced from field latex reverses the ratio whereby the rubber content is increased to 60% and the water content is reduced to 40%. Basically, field latex is raw rubber whereas centrifuged latex is a product. This is the rationale behind giving or setting-off/deduction under Notification dated 13-11-2007." 20. Again, the judgment relied upon by the learned counsel for the respondents in Union of India v. Azadi Bachao Andolan [(2004) 10 SCC 1] was in the context of the circular issued in violation of Section 119 of the Income-tax Act relating to the residence nature of a Company which was sought to be assessed and it was held that the powers of Central Board of Direct Taxes in issuing directions in the form of circular under Section 119 of the Income-tax Act to set things on course by eliminating avoidable wastage of time, talent and energy of the assessing officers discharging the onerous public duty of collecting revenue and that is not the case on hand. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rospectively applied to demand tax. In the clarification issued by the department after Budget 2007-2008, it was stated that Section 65(64) of Finance Act, 1994 has been amended to clarify that "goods" for the purpose of this service (Management, Maintenance or repair service) includes computer software. It was also clarified that development of computer software would be liable to tax under Information and Technology service whereas maintenance and repair of computer software would be coming under management, maintenance or repair service. 14. It is the submission of the appellant that maintenance and repair includes development of software and in fact development of software is outside the preview of service tax since the Information Technology service became liable to Service Tax on the development of software only w.e.f 16-5-08. However, there is no bifurcation of the cost of development and the cost of maintenance. Further, the contract also speaks of BMS software maintenance, e-care maintenance, maintenance of software and website maintenance. In every case, word 'maintenance' has been used. In the absence of the word 'development' and presence of word 'maintenance' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 "maintenance or repair", when used in connection with computer software, has a wider import than when used in connection with tangible goods. In this view of the matter, we would now have a look at the new levy introduced on 16-5-2008. 5.2 "Information technology software" is seen defined under Section 65(53a) of the Finance Act, 1994 as follows :- 65(53a) "information technology software" means any representation of instructions, data, sound or image, including sour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....08. "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 maintenance or repair of computer software is specifically covered under sub-clause (c). It is obvious that the legislature has understood information technology software to be distinct and different from computer software. The Circulars and decisions cited before us, all, discuss computer software. No material has been placed before us, other than the literature supplied by the learned Special Consultant for the Revenue, to show that activities of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aintenance of goods', which, as per Explanation extracted supra, includes 'computer software', existed from an earlier date, contention of Revenue would render the appellant taxable for the period in dispute. Revenue relies upon the superseding Circular No. 81/2/2005-S.T., dated 7th October, 2005 of Central Board of Excise & Customs which was issued consequent to the decision of the Hon'ble Supreme Court In Re : Tata Consultancy cited supra. 11. The finely tuned calibration that is demonstrated by the Supreme Legislature in the taxing of various services since 1994 is patently not reflected in the manner in which tax collection is sought to be enhanced by the Central Board of Excise & Customs (or, more probably, by overreach on the part of field offices by confusing the two categories of software). Undoubtedly, computer software of a type was held to be goods by the Hon'ble Supreme Court. That was in the context of the definition of 'goods' in the Andhra Pradesh General Sales Tax Act, 1957. Even if the definition therein was almost identically worded as the definition in Section 2(7) of Sale of Goods Act, 1930 to which 'goods' in Finance Act, 1994 is linked and it is that ....