AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 242
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.... service tax on output IT Services provided by them. 1.3 On intelligence gathered and upon verification of accounts, it was noted by the Department that appellant had entered into an agreement (Microsoft Channel Agreement) with Microsoft as a Large Account Reseller under which Microsoft has authorised appellant to distribute / sell Microsoft Licences to domestic customers. The Agreement provides for 'Microsoft Volume Licensing Programme-Select and Enterprise Scheme'. As per the said Scheme, the end customers having huge number of computers, say 200-250 can obtain the License from Microsoft for the right to use the software through the Large Account Re-seller instead of obtaining the software in physical form. It is the case of the Department, that as per the Agreement, Microsoft would sell Software Licence (i.e., Title for the right to use the Microsoft software) for distribution / sale to the appellant and issue invoice and receive the payment from the appellant in foreign currency. The appellant in turn would distribute / sell the Software Licences to end customers. The appellant would also issue invoices to the end customers who are SEZ as well as domestic customers. Thus, Micr....
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.... foreign currency is made to Microsoft. For calculating the Service Tax liability, a work sheet in a particular month based on payment made to Microsoft against invoices is prepared. The service tax is paid under GAR-7 challan as per the amount arrived at in the work sheet. The amount so paid under GAR-7 is availed as input service credit. vi. Likewise, for the Outward IT Service provided by M/s. Wipro (i.e. sale of Software Licenses to domestic customers), invoices are issued on the end customer by M/s. Wipro. Service Tax is paid on the said invoice prices after the payment is received from End Customer. The credit availed on the import of service is used for payment of Service Tax on the outward service and the balance is paid in cash. vii. The End-Customer can directly download the software from the Microsoft Portal after receiving the licenses through invoices from M/s. Wipro. 1.5 The evidences collected by Department to conclude that appellant has received IT Services from Microsoft as alleged in the Show Cause Notice is as under:- "6. Evidence in Support of Receipt of IT Services by M/s. WIPRO The following facts are relevant in this regard: - i) The "Microsoft Vol....
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....e tax under reverse charge basis. 1.8.2 The appellant is therefore liable to pay service tax of Rs.14,83,51,647/- being the service tax liable to be paid under reverse charge mechanism for IT Services received from Microsoft (outside India) and intended for distribution / sale to SEZ units for the period from 16.05.2008 to 15.09.2009. 1.8.3 From the records, it was noticed that M/s. Cognizant Technology Solutions India Private Limited, a DTA, Non-SEZ customer had placed purchase order on appellant as purchase order dated 20.02.2008 for various software licenses for total value of Rs.58,66,99,823/-. The appellant in turn had placed an order for the software licence to Microsoft, Singapore. The invoice issued by Microsoft is dated 22.02.2008 which is prior to 16.05.2008. These licences were received in appellants Puducherry unit on 18.07.2008. Appellant had not paid service tax on the invoice dated 22.02.2008, but had adjusted the service tax paid for IT Services received and intended for SEZ towards the invoice of Cognizant Technologies. Such adjustment is not proper. As per the service tax details for the month of September 2008, January 2009, February 2009 and March 2009, it was....
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....iled as input service credit and the same can be utilised for payment of output service tax. The appellant has utilised the input service tax credit for providing output service to domestic and non-SEZ customers and the credit availed was also utilised for payment of service tax on output services. Rule 6(1) read with Rule 2(e) of the CENVAT Credit Rules, 2004, says that credit is not eligible for exempted services. In the present case, IT Services provided by appellant to above mentioned SEZ units are completely exempted from payment of service tax as per the Notifications. In such circumstances, the input service tax credit availed by the appellant to the tune of Rs.6,24,50,068/- is ineligible. 1.10 On verification of their output services and service tax liability statement, it was noted that appellant received IT Services from Microsoft, Singapore which were for their own use in Wipro Technologies and Wipro BPO divisions, which are integral part of the appellant company. The appellant ought to have paid service tax under reverse charge basis for the IT Services received from Microsoft, Singapore for their own use. They have not discharged service tax on IT Services received by....
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.... Softcom, a domestic service provider of IT services. The appellant inadvertently included the same in the liability statement for service tax as tax paid under reverse charge mechanism. The appellant also availed credit of the service tax paid by them and reflected it in ST-3 returns for the month of December 2008. 1.15 After availing such credit, the appellant has used such credit for payment / adjustment of service tax liability for import of services for the month of January 2009 which is in violation of law. The appellant has thus short paid service tax for the month of January 2009 to the tune of Rs.17,99,073/-. 1.16 Further, it was noticed that appellant has been preparing among their service tax liability statements for each month based on the payments made to Microsoft, Singapore. However, on reconciliation of Microsoft ledger and monthly statements, the appellant on two occasions has failed to consider the entire amount paid to Microsoft. The appellant has taken into consideration only part of the amount for the purpose of calculating the service tax liability under reverse charge basis. By resorting to this method, the appellant has short paid service tax to the tune o....
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....llant. The Ld. Counsel adverted to para 20 of the Show Cause Notice to point out the issues on which the demand has been raised in the Show Cause Notice. These issues are as under:- 2.2 The first issue is the demand of Rs.14,83,51,647/- raised alleging that the appellant has received IT Service from Microsoft for which payments were made by appellant to Microsoft and such payments being consideration paid by appellant is liable to pay service tax on such consideration on reverse charge basis, as a service recipient. It is alleged in Show Cause Notice that Microsoft has given the appellant, the right to sell software (Licence) and this activity falls within the definition of Information Technology Software Services. 2.3 The definition of Information Technology Services introduced w.e.f. 16.05.2008 was referred to by the Ld. Counsel and reads as under:- "Section 65(105)(zzzze) to any person, by any other person in relation to information technology software Including,- (i) development of information technology software, (ii) study, analysis, design and programming of information technology software, (iii) adaptation, upgradation, enhancement, implementation and other simila....
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....tity other than the Customer unless authorized by Microsoft in writing. Each Customer will designate a Large Account Reseller for itself and its affiliates and an Enrolment Company may not accept orders or receive payment for Licensed Software and Software Assurance from a Customer outside the Territory. In addition, Company may not accept orders or receive payment for Licenced Software or Software Assurance (but may accept orders for Documentation Components) from any Enterprise (Direct) Agreement Customer that has an Enrolment directly with Microsoft. 6. Pricing, purchase orders, purchase order revisions, payment. a. Pricing. Microsoft's prices for all Customer orders of Licensed Software and Software Assurance are available at the Channel Partner Website or, if applicable, in a channel price sheat Microsoft gives Company in connection with a specific Customer's Enterprise (Indirect) Agreement Enrollment. b. Purchase order submission. Company will submit purchase orders to Microsoft on a regular basis. Details regarding purchase order submission are outlined in the Guide for Large Account Resellers. c. Purchase order revisions. Company may submit revisions to its ....
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....sel as under. 2.6 The Ld. Counsel has submitted the grounds regarding to this issue as follows:- i. Appellant is a large account reseller under the volume licensing scheme. ii. End customer requires license from Microsoft which directs the customer to the larger account reseller. According to the requirements of the customer, an order is placed on the appellant who in turn places and order on Microsoft. iii. Confirmation email from Microsoft is forwarded to the Customer and invoice is raised by the Appellant. Customer is provided access to a secure Microsoft website from which they can download the licenses software. iv. License is directly provided to and used by the end customer. The license agreement is directly between the customer and Microsoft. There is no transfer of license first to the Appellant and thereafter to the customer; there is no retransfer of license. Appellant only facilitates the placing of the Customer's order requirements with Microsoft. v. The secure Microsoft website allows only the end customer to access and download through the use of an access code. The Appellant is not provided with the access code and does not download anything from Micr....
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.....06.2003 entered between Covansys (India) Pvt. Ltd. and Microsoft was referred by the Ld. Counsel. The said company is an SEZ unit. Para 2 of the Agreement reads as under:- "2. Use and ownership. Unless otherwise specified in a license agreement, use of any product that you Licence from us is governed by product use rights specific to each product and version and by the terms of the Licence agreement under which you licensed the product. We will provide you with a copy of the applicable product use rights or will make them available to you either by publication on the World Wide Web, at meruseti.com/licensing or at a successor site that we identify, or by some other reasonable means. You acknowledge that you have access to the World Wide Web. We do not transfer any ownership rights in any licensed product and we reserve all rights not expressly granted. Use of any fixes is defined by the product use rights for the affected product or, if the fix is not provided for a specific product, any other use terms we provide. All fixes are licensed to you. Use and ownership of service deliverables will be as set forth in the applicable services agreement and related documents." 2.9 The ....
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....ay convey title, ownership or the right to use Software to the appellant. When the Agreement entered between the appellant and Microsoft does not say that the title, ownership or the right to use the Software is given to the appellant, the Department cannot merely rely upon the intimation given to the Customs Department to allege that the title, ownership / right to use the Software has been transferred to the appellant. The Ld. Counsel pointed out that in the said intimation, the Tariff Heading of the documents (Software) is mentioned as CTH 4907. It is not mentioned as 8523 which would apply to downloaded Software contained in media (physical form). This itself would show that the appellant was issuing paper licences to the end customer and has not transferred any title or ownership or right to use the software, as alleged by Department. 2.11 In regard to the issue alleging that there is short payment of service tax of Rs.6,35,23,362/-. The Ld. Counsel submitted that this is regard to software provided to SEZ units. Appellant is not liable to pay service tax under reverse charge basis or forward charge basis. Moreover, the download of software has taken place in most cases befor....
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.... had the utilised the credit availed by them for payment service tax, these demands have been confirmed. It is submitted by the Ld. Counsel that if the first issue is considered in favour of the appellant, the demands under these issues cannot sustain. 2.15 The 7th issue is with regard to credit availed on RMA invoices. The appellant had paid the service tax and therefore, the credit availed is legal and proper. 2.16 The allegation in the 8th issue is that the appellant has paid short paid service tax as they had calculated the tax liability only partial amount paid to Microsoft, the Ld. Counsel submitted that the said conclusion is incorrect. The appellant is not liable to pay any service tax under reverse charge basis as there is no services provided to Microsoft. 2.17 The 9th issue is with regard to non-payment of service tax on IT Services received from Microsoft and provided to domestic customer. This also has relevance to the first issue and the same arguments are adopted by the appellant. The Ld. Counsel prayed that the appeal may be allowed. 3.1 The Ld. Special Counsel Shri C. Subramanian appeared and argued for the Department. The Show Cause Notice dated 21.10.2011 was....
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....ision. Additional details regarding purchase order revisions are outlined in the Guide for Large Account Resellers. d. Payment. All payments must be remitted to the account identified in the Guide for Large Account Resellers. e. Credit worthiness and collection guidelines. Company will decide whether or not to extend credit to its Customers. Company will use commercially reasonable efforts to ensure that each of its Customers is credit worthy before it submits any Customer Agreement to Microsoft, such as by collecting and reviewing financial statements and credit reports. Company must periodically monitor each Customer's continued credit worthiness throughout the Customer Agreement term." 3.2 As per the Scheme, the end customers have huge number of computers (say 200 to 250) and desired to obtain the licence from Microsoft. They obtain the right to use the software through the Large Account Reseller (appellant) instead of obtaining the software in physical form. As per the above Agreement, Microsoft would sell software (i.e., title for the right to use the Microsoft Software) for distribution / sale to appellant and issue an invoice. Microsoft receives the payment from appella....
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....lant for which payments have been made by the appellant to Microsoft. The appellant is liable to pay service tax on the payments made to Microsoft under reverse charge mechanism. 3.5 Though, the end customers are situated in SEZ, during the disputed period, the transactions are not covered by Notification No. 4/2004-ST dated 31.03.2004. The said Notification would exempt services provided under Section 66 of the Finance Act only. Later by Notification No. 17/2011-ST dated 01.03.2011, the Service Tax in respect of services provided to SEZ was exempted even under reverse charge mechanism. The period involved falls prior to 2011 and Notification No. 4/2004 would be applicable. Therefore, the services provided to the SEZ units by the appellant is not eligible for exemption. 3.6 The Ld. Special Counsel for the Department submitted that after paying the service tax, the appellant has adjusted the amount towards the liability for payment of service tax on domestic transactions. The service tax paid in respect of IT services for SEZ units being in full order, the appellant ought not to have adjusted the same. In fact, the appellant had obtained registration and paid the service tax on re....
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....ue to be analysed is whether Microsoft has provided any IT Services to the appellant by which the appellant is liable to pay service tax under reverse charge mechanism. The answer to the first issue would be relevant to analyse the other issues. This is because, all the other issues are in consequence of non-payment of service tax by the appellant for the services received by them from Microsoft. So also, the allegation of availing ineligible credit and wrong adjustment of input service tax credit is dependent on the answer to the first issue. We are therefore proceed to analyse the first issue. 6. The allegation in the Show Cause Notice is that the appellant received IT Services from Microsoft and used these services for providing IT Services to domestic customers. Para 2 of the Show Cause Notice dated 21.10.2011 is reproduced as under:- "M/s. Wipro had received "Information Technology Software Services" (hereinafter referred to as IT Services) from outside India from M/s. Microsoft Corporation, Singapore and paid service on such service tax under Section 66A of the Finance Act, 1944 as a deemed service provider. The IT Services received from Microsoft were used for providing o....
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....rate the PIN. The appellant only supplies the PIN to customer and is not given right to use the PIN to download the software. In the transaction explained in para 4 of the Show Cause Notice, we do not find any service falling under the definition of ITSS provided by Microsoft to Wipro. So also, we do not find any consideration paid by the appellant as value of the software to Microsoft in the form consideration for sale or right to use. Again, the invoices issued by Microsoft mentions the name of the customer and not appellant. This itself is clear indication that Microsoft is not selling or transferring right to use the software to Wipro but, selling it directly to customer and the appellant only facilitates the placing of order, supply of software and collection of payment. 9. The Ld. Senior Counsel has relied upon the document furnished by the appellant before the Customs Authorities. This document is for compliance of FEMA Regulations in regard to foreign currency remittances. The document is reproduced in para 3.3. Merely because, it is stated in the document that the right to use IT Services is transferred, it cannot be said that such right has been transferred to the appell....