TaxTMI 
TaxTMI 
2025 (4) TMI 825
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....during the period from February 2007 to March 2009, it was observed that the appellant had discharged the service tax only 25% of the bill value instead of 100%. On scrutiny of the invoices for the period prior to 2007, it was noticed that the appellant was discharging service tax on 100% of the taxable value. On further analysis of the agreement with various clients, it was observed that the software belonging to the appellant is being sold to a customer, technical support is provided for one year without any charge. From second year onwards, the customer has to pay a pre-determined amount for utilising the technical support purchased from the assessee. On analysis of the agreement relating to provision for ATS, the Department alleged that the service falls under the category of MMR service as defined under Section 65(64) of the Finance Act, 1994. Further, it is noticed that the appellant, w.e.f. 16/05/2008, is paying service tax on the right to use software under ITSS; hence, they claimed that for the earlier period, there was a transfer of right to use of the property to the customers. It is alleged that the said explanation of the appellant is incorrect, as per the agreement, t....
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....er:- * As a onetime activity - Configure Patch Deployment Tool on all the tiers where Finacle applications have been installed. * Create a schema in the existing Database Instance to store patch information. * During configuration, give the paths of various installed solutions. * Identify one of the servers (in case various tiers spread across multiple servers) as central server from where patches will be applied to all the servers. * Stop the services before applying the patches. * Deploy patches by providing patch id typically the name of the patch delivered. * Start the services once patch is successfully deployed. * Generate the customised reports over a time span etc. 3.2. It is his contention that these activities are considered as 'Deemed Sale' in terms of Article 366(29A) of the Constitution of India and subjected to local Sales Tax (VAT) under the category of 'Works Contract'. The appellant with effect from 01/02/2007 paid VAT on 75% of the gross value of the invoice and service tax on 25% thereby complied with the local and central levies as applicable. The appellant's records were audited by the A....
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....urt and Karnataka High Court in their own case reported in 2009(233) ELT 56 (Mad.) and 2015-TIOL 2106 KAR-HC-VAT. 3.5. Further, relying upon the following decisions, learned advocate submitted that no service tax can be demanded on the amount/value, if sales tax / VAT has been paid on a given transaction with regard to the such amount/value: a. CST Vs. Quick Heal Technologies Ltd. [2022(63) GSTL 385 (SC)] b. Safety Retreading Co. P. Ltd. Vs. CCE [2017(48) STR 97 (SC) c. Imagic Creative Pvt. Ltd. Vs. CCT [2008(9) STR 337 (SC)] d. Wipro GE Medical Systems Pvt. Ltd. Vs. CST [2009(14) STR 43 (T)], maintained by the Supreme Court in Commissioner Vs. Wipro GE Medical Systems Pvt. Ltd. [2012(28) STR J.44 (SC)] 3.6. Learned Counsel further submitted that denial of the benefit of Notification No.12/2003-ST dt. 20/06/2003 by the learned Commissioner is devoid of merit as the learned Commissioner has misconstrued the nature of ATS transactions and has failed to appreciate that no cenvat credit was availed on any goods used to provide ATS. Learned Commissioner ought not to have questioned the payments made through cenvat account to discharge the servic....
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....alue instead of on 100% of the invoice value. "Annual Technical Support" was provided to various banks by the appellant with whom they had an agreement in relation to maintenance of their customized software 'Finacle' used by the banks. These services were provided over and above the implementation, installation and training services provided by the appellant to the clients with respect to their customized software Finacle for a separate consideration termed as 'Annual Technical Support' charges. A perusal of the agreements revealed that the Annual Technical Support consisted of following services. * Problem solving and Trouble shooting * Rectification of any bugs reported * Upgrades and maintenance releases of Infosys products procured by the client. * Upgrades mean subsequent improved versions and releases of the Licenced software. Upgrade may include software Trouble Report, Software Enhancement request. * Maintenance release means subsequent improved releases of the application which include fixes to software trouble reported. 4.1. It is also stated that the appellant had discharged service tax on 100% of value of "Annual ....
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....ecified in Annexure 4-BANCS 2000 Support services. Updates shall not include any options or future products which INFOSYS licenses separately. From the above clauses, it is seen that the part of the contract that is claimed as 'goods' or 'deemed sale' by the appellant by virtue of which the activity is claimed to be a composite contract, is indeed provided free of cost as a part of the Annual Technical Support Services. According to Karnataka VAT Act, 'Sale' is defined under Section 2(29) as follows: "(29) 'Sale' with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes, - a) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; c) a delivery of goods on hire purchase or any syste....
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....of those goods by the person to whom such transfer, delivery or supply is made;" 4.5. Revenue submits that in the absence of any consideration envisaged in the said Agreement between the appellant and their clients for right to use of "updates', the contract between them is not a composite contract, but in fact a contract for service simpliciter. Such being the case, it is contradictory to claim that 75% of the value is towards Right to Use of goods or Sale of Goods. In fact, in view of the "free updates" envisaged in the agreement, there is no element of sale as per KVAT Act and the Rules made thereunder. Therefore, the said contract is not a composite contract in its essence. Consequently, it can be inferred that the charges received by the appellant are towards Annual Technical Support services. Hence, the question raised by the appellant regarding jurisdiction to levy service tax on the portion attributable to service in a composite contract becomes infructuous. 4.6. Countering, the reliance placed on the decision by the Hon'ble High, Court of Karnataka which refers to the said Annual Technical Support Services are works contract is misplaced since the question be....
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....ir or servicing of any goods or equipment. Software, being goods, any service in relation to maintenance or repair or servicing of software is leviable to service tax under section 65(105)(zzg) read with Section 65 (64) of the Finance Act, 1994. The clarification dated 29.02.2008 vide D.O.F.No.334/1/2008-TRU stated that Management, Maintenance or repair of properties includes Management, Maintenance or repair of IT Software. However, as submitted in the above paragraphs, the department had clarified vide Circular No.81/2/2005-ST dated 7th October 2005 that Maintenance or repair of software is a taxable service and hence, this clarification only made explicit what was already envisaged in the law. Further it is contested that reliance on UOI Vs. Martin Lottery Agencies1 Ltd.: 2009 (14) STR 593 (SC) to state that any explanation which expanded the scope of the entry can only be prospective in nature, is not tenable because only substantive law can be only prospective in nature, however, in this case, the explanation has only clarified the scope of goods of properties which further stands clarified by the Circular No. 81/2/2005-ST dated 7th October 2005 which was a consequence of the ....
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....d by the Revenue as against the claim of the appellant that they are liable to pay only on 25% of the value. The period of dispute is February 2007 to March 2009. From the records, it is seen that the appellant has entered into software and support service agreement with the ICICI Bank Corporation Limited wherein at Clause 1.5 of the Agreement "updates" is defined as shall mean improved releases of the program which are generally made available at no additional cost to Infosys' Licensees, who have purchases Annual Technical Support as specified in annexure-4- BANCS 2000 support services. Update shall not include any options or future products which Infosys' licenses separately. At Clause-1.6 of the agreement "upgrades" shall mean new releases of the program which would be made available at an additional cost to Infosys' licensees. Article 18 provides for support services read with Clause-4 of Annexure-3 of the same agreement; Annual Technical Support clearly mentions the following : "Annual Technical Support, per annum, will be provided by Infosys for every branch after the implementation of BANCS 2000 1.0 and associate modules, and will entitle the Bank for the followi....
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....rovider and the subscriber that the consensus was to mutilate the integrity of contract as a transfer of right to use goods and rendering service. Such a mutilation is not possible except in the case of deemed sale falling under sub-clause (b). Nor can the service element be disregarded and the entirety of the transaction be treated as a sale of goods (even when it is assumed that there is any goods at all involved) except when it falls under sub-clause (f). This will also result in an anomaly of the entire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services. 112. Sale of Goods Act, comprehends two elements, one is a sale and the other is delivery of goods. 20th Century Finance Corporation Limited v. State of Maharashtra - 2000 (6) SCC 12 at 44, ruled that - "(c) where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contrac....
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.... to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction". 5.3. In the instant case, it is also a fact that prior to and after the period in dispute, the appellant is paying service tax on the entire invoice value without disputing the fact that they are discharging VAT on part of the same value. Therefore, the question of not paying service tax on the entire value during the disputed period does not arise as the entire value is exclusively towards service element. 6. It is to be noted that the Karnataka Value Added Tax (KVAT), 2003, 'works contract' did not include computer software till 01.04.2006 and from 01.04.2006 onwards programming and providing compu....
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....e same is not transferred to the customer and what is transferred is only the right to use. Therefore, the said right to use these enhancements, upgrades, maintenance and releases also constitutes goods and is liable to VAT. The record shows that the assessee has paid VAT on these enhancements and upgrades. Therefore, it is clear ATS is a works contract. It is a contract to permit right to use enhancements, upgrades, maintenance and releases as well as ATS services as it was indivisible by virtue of 46th amendment which falls under Clause (b) of Article 366 (29A). This transaction of deemed sale has been dealt with by the Tribunal Principal Bench, New Delhi in the case of Sayaji Hotels Ltd. Versus Commissioner of C. EX., Indore 2011 (24) S.T.R. 177 (Tri. - Del.) dated 25-1-2011 in similar set of facts has observed as follows: "6. The question now arises as to whether a Mandap keeper, in whose case, the value of food & beverages served is much more that 40% of the gross amount charged for the Mandap keeper service, has option to avail of the general exemption under Notification No. 12/03-S.T. by treating the supply of food and beverages as sale. Since this is the core issue....
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....the wordings of clause (f) of Article 366(29A) of the Constitution it is clear that by this provision, for the purpose of charging tax on sale or purchase of goods, the supply of food or drinks by the way of or as part of service is to be treated as sale of food and drinks. It is thus a legal fiction created for the purpose of enabling the State Governments to charge sales tax on supply of food and drinks involved in catering contracts, while otherwise had been held by the courts as services contracts, by treating the same as sale. As has been held by Hon'ble Supreme Court in its judgments in the cases of - (a) State of Maharashtra v. Laljit Rishi Shah reported in (2000) 2 SCC 699; (b) Union of India v. Sampat Raj Dugar reported in AIR 1992 SC 1417 = 1992 (58) E.L.T. 163 (S.C.); (c) K. Prabhakaran v. P. Jayarajan reported in (2005) 1 SCC 754 = AIR (2005) 688; (d) Raymond Ltd. v. State of Chhattisgarh reported in (2007) 3 SCC 79 and (e) Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Tax (supra), in construing a legal fiction, it is not to be extended beyond the purpose for which it has been created. Since Article 366(29A) had been inserted in the Constitution of In....
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.... sale as well as service or for two or more different services, depends upon the intention of the parties, which has to be ascertained from the terms of the contract. In this regard, Hon'ble Supreme Court in para 4 of its judgment in case of Sentinal Rolling Shutters & Engg v. Commissioner of Sales Tax reported in (1978) 4 SCC 260 has observed as under - "4. It may be pointed out that a contract where not only work has to be done but the execution of such work requires goods to be used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of work for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or it may be a contract for supply of goods where some work is required to be done as incidental to sale. When the contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and other for work and labour. The second type of contract is clearly a contract for work and labour not involving sale of goods, while the third type of contract is a contract for sale wher....
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....td. v. Lt. Governor of Delhi reported in (1979) 1 SCR 557 has held that serving of food or drinks by a restaurant to his customers does not partake of the character of sale of goods. Thus, the catering component of the Appellant's contract with their customer while rendering Mandap keeper service is service in which there is no object of sale of food and beverages and as such no sale of food and beverages is involved. In fact the food and beverages served to the guests of the customer while using the Mandap is consumed by them without transfer of possession of food and beverages from the Mandap keeper to his customer for some consideration. Just because a Mandap keeper charges a specified amount for serving food and beverages to the guests of its customers, that does not become sale of food and beverages, as the intention of the contract is providing service incidentally involving serving of food and drinks to the guests of the customer and the price charged for serving of food and drinks forms part of consideration of Mandap keeper service but not the price for sale of food and drinks. 6.1.2.2 Other than merely making a bald claim that the charges for food and drinks show....
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....nd state is different. Different aspects of a transaction is taxed under different legislative entries. After carefully considering plea of the appellant, we are of the view that the same is devoid of merit for the following reasons : (1) Hon'ble Supreme Court in case of Tamil Nadu Kalyana Mandapam Association v. Union of India (supra) while considering the validity of levy of Service tax by the Central Government on the service in relation to use of Mandap, while dismissing the argument of the Appellants that Service tax by Central Government on catering services, a part of service in relation of use of Mandap, amounts to tax on sale and purchase of goods, and upholding the levy, held that the fact that sales tax on the supply of goods involved in the said service can be levied does not mean that a Service tax cannot be levied on the service aspect of catering. In this regard paras 42, 43, 44 and 45 are reproduced below :- "42. As far as the above point is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of G....
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....of Hotel and Restaurant (supra) and, in particular, on the aspect theory is, therefore, apposite and should be upheld by this Court. In view of this, the contention of the appellant on this aspect is not well founded. 45. It is well settled that the measure of taxation cannot affect the nature of taxation and, therefore, the fact that Service tax is levied as a percentage of the gross charges for catering cannot alter or affect the legislative competence of Parliament in the matter." Thus, the plea that Service tax cannot be levied on the portion of value of Mandap Keeper Service which represents the value of food and beverages served is baseless. In fact in paras 42 & 43 of the Apex Court judgment reproduced above it has been held in very clear terms that Article 366(29A)(f) only permits the states to impose a tax on the supply of food and drinks by whatever mode it may be made and it does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. (2) In the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes (supra), the assessee was providing "advertising Agency's service" and wa....
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....e value. Accordingly, same is upheld. However, we find that the appellant has been approaching the department and agitating this issue through series of correspondences/communications from December 2005 onwards. Various correspondence has been placed on record from December 2005 to September 2009 and at no point of time, objections were raised by the department. The Commissioner in the impugned order though admits the fact that the appellant vide their letter dated 26.04.2007 had informed the Department that service tax was being discharged on 25% of the value, discarded the same on the ground that the letter nowhere mentioned that VAT was being paid and the appellant failed to file the agreements and these omissions indicate the intention to evade payment of tax. We find that as rightly claimed by the appellant, there are no willful suppression of facts or misstatement of facts as seen from the correspondences and various letters filed by the appellant. Therefore, the show- cause notice dated 2.3.2010 invoking suppression cannot be sustained. The Supreme Court in the case of Uniworth Textiles Ltd.Versus Commissioner of Central Excise, Raipur 2013 (288) E.L.T. 161 (S.C.) dated 22-1....