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2013 (2) TMI 484 - Commissioner - Service TaxMaintenance of software Applicability before 1.6.2007 - Notification No. 20/2003 and Notification No. 7/2004 Whether the appellant is liable to pay Service tax on maintenance of software during 9-7-2004 to 30-8-2005 under the category of Maintenance and Repair Service Appellant realized consideration towards maintenance of Software from their customers for the period 9-7-2004 to 30-8-2005 Held that - Underlying principle in Kasturi & Sons Ltd. v. UOI 2011 (2) TMI 76 - HIGH COURT OF MADRAS is that Service tax cannot be levied by issuing circular. Circular cannot override the provision of Finance Act, 1994. As per the decision in this case, Service tax is not liable to be taxed by way of Circulars without enabling provisions under Finance Act, 1994. Accordingly appellant is not liable to pay Service tax prior to the period of 1-6-2007 In favour of assessee. Cenvat credit on the Service tax paid towards telephone and medical insurance of employees In Ultratech Cement Ltd 2010 (10) TMI 13 - BOMBAY HIGH COURT it has been held that the assessee is entitled for input service credit of the services, which are availed in course of their business and manufacturing activity. Since appellant had utilized both the disputed services in relation to their business activity and in the course of their business activity - Appellant is entitled to the credit of input service availed by them on the Service tax paid towards telephone and medical insurance of the employees In favour of assessee. Further appellants genuinely believed that software maintenance did not attract Service tax during the period from 9-7-2004 to 30-8-2005. - started paying Service tax w.e.f. 1-9-2005 even when the maintenance of software was not taxable - Therefore no suppression of facts with an intention to evade payment of Service tax - Entire demand for the maintenance of software and for wrong availment of ineligible credit is not sustainable as the ingredients to invoke the extended period under Section 73(1) of the Finance Act are absent in the instant case set aside the order Appeal allowed.
Issues Involved:
1. Liability to pay Service tax on maintenance of software during the disputed period. 2. Entitlement to credit availed on Service tax paid towards telephone and medical insurance of employees. 3. Applicability of the limitation period under Section 73(1) of the Finance Act, 1994. Detailed Analysis: 1. Liability to pay Service tax on maintenance of software during the disputed period: The appellant was issued a Show Cause Notice for non-payment of Service tax on maintenance of software during the period 9-7-2004 to 30-8-2005. The Department contended that the appellant was liable to pay Service tax on maintenance charges collected from clients for software maintenance from 9-7-2004. The appellant argued that maintenance of IT software was taxable only from 16-5-2008, supported by various case laws, including Kasturi & Co. v. Union of India, EBZ Online Private Limited v. CCE, Pune, and SAP India Pvt. Ltd. v. CCE, Bangalore-III. The appellant further argued that Service tax cannot be levied by issuing circulars without enabling provisions under Finance Act, 1994. The judgment concluded that the appellant is not liable to pay Service tax prior to 1-6-2007, as Service tax on software maintenance was not clearly defined before this period. 2. Entitlement to credit availed on Service tax paid towards telephone and medical insurance of employees: The appellant claimed credit on Service tax paid towards telephone and medical insurance of employees. The judgment referred to the Bombay High Court's decision in Ultratech Cement Ltd., which held that input service credit is allowable for services availed in the course of business activities. It was concluded that the appellant is entitled to the credit of input service availed on the Service tax paid towards telephone and medical insurance of employees, as these services were utilized in relation to their business activities. 3. Applicability of the limitation period under Section 73(1) of the Finance Act, 1994: The appellant argued that the demand was time-barred, as they had not suppressed any information from the Department and had started paying Service tax from 1-9-2005, even when the maintenance of software was not taxable. The judgment found that there was no suppression of facts with an intention to evade payment of Service tax, and thus, the extended period under Section 73(1) of the Finance Act could not be invoked. Consequently, the entire demand for the maintenance of software and for wrong availment of ineligible credit was deemed unsustainable. Conclusion: The impugned Order-in-Original of the Lower Adjudicating Authority was set aside, and the appeal was allowed. The appellant was not liable to pay Service tax on software maintenance prior to 1-6-2007, was entitled to the credit of input service for telephone and medical insurance, and the demand was barred by the limitation period under Section 73(1) of the Finance Act, 1994.
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