2024 (12) TMI 600 - AT - Service Tax

Classification of services received by the appellant as OIDAR services - whether as a recipient he is liable for service tax? - the services being provided from outside India whether the recipient is liable for service tax under Section 66A of the Finance Act 1994 - Imposition of penalties under Sections 76 and 77 of the Finance Act 1994. Whether the services received by the appellant are classifiable as OIDAR services and whether as a recipient he is liable for service tax? - HELD THAT - It is clear that OIDAR service means providing of information knowledge facts concepts or instructions which are being prepared or have been prepared in a formalized manner and is intended to be processed is being processed or has being processed through the inter-connection of one or more computers or computer systems or communication device through the use of satellite microwave terrestrial line wire wireless or other communication media; and through terminals or a complex consisting of two or more interconnected computers or communication device whether or not the inter-connection is continuously maintained. The observations of the Commissioner in the impugned order that the contract specifically provides for remote use and access of the data warehouse systems of their holding company through a dedicated Internet which is nothing but a computer network and the fact that the agreement allows access for automatic global directory update with mailing interfaces clearly establishes that the services provided under the agreement cited above squarely fall into the category of online information and database access or retrieval service cannot be ignored. The Commissioner also observed that the appellant s contention that these services are in the nature of information technology services is not acceptable in as much as the agreement not only provides for use of the reserved capacity of the regional server but also grants access to the databases on flavours fragrances product library EC based on the definition under section 65 (75) of the Finance Act 1994 it is clear that any information knowledge concepts or instructions which are prepared in a formalised manner and intended to be used or processed in a computer system would get covered under the aforementioned services - based on the services received by the appellant it is clear that it is not mere Information Technology Services but the services received include whole lot of access to the data worldwide with regard to technology production and various other services essential for day-to-day manufacturing activities. Therefore the Commissioner agreed upon that the services received by the appellant fall under OIDAR services. The services being provided from outside India whether the recipient is liable for service tax under Section 66A of the Finance Act 1994? - HELD THAT - With effect from 18.04.2006 though the service provider is outside India the appellant being recipient of services is liable to pay service tax as per Section 66A and Section 68 of the Finance Act 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules 1994. In view of the above the appellant is liable for payment of service tax for the period from 01.10.2006 to 28.02.2008 and for the month of March 2008 under Section 73(1) of the Finance Act 1994 as held by the Commissioner in the impugned order along with interest under Section 75 of the Finance Act 1994. Imposition of penalties under Sections 76 and 77 of the Finance Act 1994 - HELD THAT - The Appellant had stated that they had reasonable belief that the services received by them are covered under IT services and hence in terms of Section 80 the penalty under section 76 is not imposable and on account of interpretation of legal provisions penalty cannot be imposed - In the instant case since the Commissioner (Appeals) has already held that there is no suppression of facts and confirmed the duty only for the normal period based on the interpretation of law there are no reason to uphold the penalty. Hence penalties under Section 76 and 77 are set aside. The confirmation of demand of service tax with interest is upheld in both the appeals but penalties are set aside - Appeals are partially allowed only to the extent of setting aside the penalty.

Summary

Issues Involved:

1. Classification of services received by the appellant as OIDAR services.
2. Liability of the recipient for service tax under Section 66A of the Finance Act, 1994.
3. Imposition of penalties under Sections 76 and 77 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services as OIDAR:

The primary issue was whether the services received by the appellant were classifiable as 'Online Information and Database Access or Retrieval Services' (OIDAR) under Section 65(105)(zh) of the Finance Act, 1994. The appellant argued that the services received from Givaudan Suisse SA and Givaudan Singapore were in the nature of Information Technology Services, involving hardware, software, IT disaster recovery, and maintenance, which should not be classified as OIDAR services. However, the Tribunal examined the definitions under the Finance Act and the Information Technology Act, which describe OIDAR as providing information or data through a computer network. The agreement between the appellant and Givaudan Suisse SA allowed access to various systems, such as supply chain, manufacturing, finance, quality and laboratory information systems, and business support systems, which were deemed to fall under OIDAR services. The Tribunal concluded that the services included access and retrieval of data essential for manufacturing and marketing, thus affirming the classification as OIDAR services.

2. Liability for Service Tax under Section 66A:

The second issue was whether the appellant, as a recipient of services from outside India, was liable to pay service tax under Section 66A of the Finance Act, 1994. The Tribunal referred to the amendment of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, following the introduction of Section 66A, which made recipients of services from abroad liable for service tax. The Tribunal cited the judgment in Indian National Shipowners Association vs. Union of India, which clarified that post-18.04.2006, recipients of services from outside India are liable for service tax. Consequently, the Tribunal upheld the appellant's liability for service tax for the periods in question, under Section 73(1) of the Finance Act, 1994, along with interest under Section 75.

3. Imposition of Penalties under Sections 76 and 77:

The final issue concerned the imposition of penalties under Sections 76 and 77 of the Finance Act, 1994. The appellant contended that they had a reasonable belief that the services were IT services, and thus, penalties should not be imposed under Section 80, which provides relief when there are two possible interpretations of law. The Tribunal noted that the Commissioner (Appeals) had already determined there was no suppression of facts and had confirmed the duty only for the normal period. Citing the Infosys Ltd. vs. CST, Bangalore case, the Tribunal highlighted that penalties are not sustainable when demands arise from differing interpretations of legal provisions. Therefore, the Tribunal set aside the penalties under Sections 76 and 77, while upholding the demand for service tax with interest.

Conclusion:

The appeals were partially allowed, with the Tribunal upholding the confirmation of the service tax demand with interest but setting aside the penalties.