9911796707
TMI Blog2012 (7) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... ase level to higher version. They are also specifically into running of electronic data processing centre, business of data processing, word processing etc. - Same appears to be limited only to the field of Engineering and the services would fall under the category of consulting engineers only. Whether the doctrine of estoppel can be invoked - Commissioner has, invoking the doctrine of estoppel, held that the appellants have treated themselves as rendering the services of 'management or business consultant' - Appellants have availed the benefit of Notification No. 16/2004 ST - demand stands confirmed only on the ground that the activities of the appellants can be considered to be in the field of management to bring them under the category of "management consultant"/"management/business consultant". This is held to be not sustainable - Commissioner has chosen to treat as if there were no exports at all and demanded service tax on the entire turnover and there is no justification for demanding service tax on the export of services - denial of credit amounting to 2.33 crores during the period October 2005 to March 2008 was on the ground of non-production of the necessary documents. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd performance of application support after the implementation of ERP package. (v) Consultancy service on specific issues relating to ERP implementation, and (vi) Upgradation of existing application software from existing release level to higher version. (b) The appellants have paid service tax on claimed domestic turnover during the period from 01.03.2006 to 31.10.2008 and while paying service tax availed/utilized inputs service tax credit of Rs. 2.33 crores during the period October 2005 to March 2008 but failed to submit any documents in proof of receipt of such input services and the said services having nexus with the output service rendered by them. (c) Show-cause notices dated 10/12/2007, 6/10/2006 were issued proposing recovery of service tax and also proposing recovery of credit allegedly availed and utilized irregularly and proposing imposition of penalties. (d) The Commissioner, by the impugned order, confirmed the demand of service tax along with interest and imposed penalties as mentioned earlier. 3.1 Shri Arvind Dattar, learned Sr. Counsel assailed the order of the Commissioner on various grounds and made the following submissions: (a) The appellants are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not rendering any service as a management consultant, is evident from the findings contained in the impugned order. (k) More than 90% of their turnover during the relevant period was only export turnover. Such export of services, whether falling under the category of 'Consulting Engineer Services' or under the category of 'Management or Business Consultant Services', is not liable to service tax. The Commissioner has demanded service tax on the entire turnover merely on the ground that there was a mismatch between figures in the annual performance reports (APRs) filed with the Software Technology Parks of India and the figures mentioned in the balance sheets. The Commissioner has not given an opportunity to the appellants to reconcile the differences in the figures in the annual performance reports and those in the balance sheets. Commissioner has failed to appreciate that the figures furnished in the annual performance reports were from the pre-audited accounts and that the difference was only minimal. (l) The export turnover figures were accepted by STPI and also by Income Tax department and satisfied the definition of 'exports' in terms of Export of Service Rules, 2005 as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther services which are in the nature of management consultant services. 4.2 The decision of the Tribunal in the case of IBM relied upon by the appellants are distinguishable from the facts of the present case. In the IBM case, the issue involved was only ERP implementation unlike in the present case where the appellant has undertaken much more activities as held by the Commissioner and hence the decision will not be applicable. 4.3 In the case of Shervani Indus. Syndicate v. CCE, Cus.&ST [2009] (14) STR 486 (Tri. - Delhi), Allahabad, the Hon'ble Tribunal while deciding the issue of providing management and technical service for the manufacture of goods, held that the activity was covered under the management consultancy service. The Hon'ble Tribunal also held that the Management has to be understood in the modern sense and not in the traditional sense as Boards of Directors etc. 5.1 We have carefully considered the submission from both sides and perused the records. Nature of activities as per the Commissioner 5.2 At the outset, it would be appropriate to identify the activities of the appellants before coming to any decision on the classification of the activities under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e organization..........." (f) In para 63 of the impugned order, it has been observed as under: "M/s. IAPL have valuable knowledge, expertise and experience in the field of ERP system implementation.' (g) In para 64 of the impugned order, it has been observed as under: "Further, 'Management or Business consultant' is supposed to be a professional rendering a service, M/s. IAPL as a professional in their field of work have profound knowledge and expertise in ERP to render service to the clients in implementation of ERP." (h) In para 65 of the impugned order, the following clauses in an agreement which according to the Commissioner, imply that the case herein is not just implementation of ERP, but extends beyond integration and management of the business affairs of the client have been extracted: "(a) M/s. IAPL are responsible for ensuring that the project contributes effectively to the business objectives of the company. (b) M/s. IAPL is required to analyse business requirements and address all integration issues with other Business Area Managers and Project Managers." (i) In para 65(ii) of the impugned order, it has been held as under: "One is, it is an accepted propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial management, human resources management, marketing management, production management, logistic management, procurement and management of information technology resources or other similar areas of management.' Consulting Engineer Consulting Engineer means 'any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering.' Information Technology Service w.e.f. 16.05.2008 "Information Technology Service" means 'any service provided or to be provided to any person in relation to information technology software for use in the course, or furtherance, of business or commerce, including I. Development of information technology software, II. Study, analysis, design and programming of information technology software, III. Adaption, upgradation, enhancement, implementation and other similar services related to information technology software, IV. Providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on the implementation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er words, management can draw people from various disciplines including basic disciplines of arts and sciences. In an organization involved in development of software also there are managerial positions and some of them who have no specialization in computer may be in such posts dealing with areas like finance, human resources, etc. 8.3 Commissioner has rightly held ERP enhances enterprise wide performance, speed and competence. ERP system enables a company to take a consolidated view of its processes, thus providing, an effective decision support system. He has also held that ERP implementation services integrate various business functions of an organization. He has in fact noted that there are as many as sixty modules in ERP management. 8.4 From his findings and discussions, it is clear that the ERP software has been prepared obviously taking inputs from various domain experts such as inventory control, production engineering, finance, labour management, marketing etc. However, the software is predominantly a product evolved by engineers. Therefore, the ERP software is to be treated as a product in the field of engineering notwithstanding any inputs that might have been taken f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ERP software implementation. It does not indicate that the appellants' team is actually engaged in decision making in diverse field of management such as inventory control, finance, marketing. Apparently by implementing ERP packages, they aid better coordination of various activities by the professionals in their client companies in the respective areas of management. The existing ERP software is, no doubt, adopted by the appellants to suit the organizational needs of the concerned client. In respect of some clients, some of the modules in the ERP system may become irrelevant or insignificant while some other modules may acquire higher significance and importance. 9.3 It has not been shown whether the appellants' team had necessary expertise in the field of financial management, human resource management, marketing management, production management, logistics management etc. Without confirming existence of such expertise, to conclude that they were rendering advice and consultation in such vital areas of management may not be appropriate. 9.4 As already noted, it has not been shown that the appellants' clients were receiving any advice/consultation from the appellants in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the appellants have treated themselves as rendering the services of 'management or business consultant' and cannot be allowed to take a different stand for the following reasons: (a) The appellants have availed the benefit of Notification No. 16/2004 ST, dated 10.09.2004 during the period from 10.09.2004 to 28.2.2006. The said Notification exempted the service rendered in respect of ERP Software System by a 'management consultant' in connection with the management of any organization in any manner. (b) They have filed ST-3 returns classifying the services under the category of 'management or business consultant'. (c) The appellants have indicated the services rendered by them as belonging to 'management/business consultant services' in the export documents. 10.2 It is not proper to interpret the scope of a taxable service based on an exemption Notification. This will amount to putting the cart before the horse. First of all, the service under which the activities would fall should be determined and then only the applicability of the notification to be considered. The correctness or otherwise of appellants availing the benefit of Notification 16/2004 ST dated 10.09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 However, the above issue becomes irrelevant in view of our finding that the demand on the domestic turnover itself is not sustainable. 12.1 Admittedly, the appellants have paid service tax on domestic turnover for the period from 01.03.2006 to 31.03.2008. This is also evident from the fact that the Commissioner has appropriated and adjusted a sum of Rs. 45,24,460/- paid by the appellants towards service tax liability as determined by him for the period from 01.06.2003 to 31.03.2008. However, he has denied credit amounting to Rs. 2.33 crores taken on input services and utilized towards payment of service tax on the ground of non-production of supporting documents. 12.2 It is not in dispute that the credit taken has been utilized for payment of service tax on domestic turnover. As we have held that the service tax itself is not payable as determined by the Commissioner, the question of disallowing the credit utilized and recovering the same does not arise. 13. In the facts and circumstances of the case, the other submissions made by both sides do not require specific discussion. 14. In view of the above, the following emerges: (a) In the instant case, the appellants are not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gone into. (e) The Commissioner has chosen to treat as if there were no exports at all and demanded service tax on the entire turnover and there is no justification for demanding service tax on the export of services. However, this issue becomes redundant in view of our decision on merits regarding the taxability of services which is in favour of the assessee. (f) The denial of credit amounting to Rs. 2.33 crores during the period October 2005 to March 2008 was on the ground of non-production of the necessary documents. This is being contested by the appellants stating that they have produced the necessary documents to department. However, this issue also becomes redundant in view of our decision on merits regarding the taxability of services which is in favour of the assessee. 15. In view of the above, the impugned order of the Commissioner is set aside and the appeal allowed with consequential relief as per law. Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oracle, Peoplessoft, etc. (ii) Support of application system to remove operational constraints. (iii) Assessing the requirements of the clients and devising and adopting the compatible system. (iv) Hosting and performance of application support after the implementation of ERP package. (v) Consultancy service on specific issues relating to ERP implementation, and (vi) Upgradation of existing application software from existing release level to higher version. (b) The appellants have paid service tax on claimed domestic turnover during the period from 01.03.2006 to 31.10.2008 and while paying service tax availed/utilized inputs service tax credit of Rs. 2.33 crores during the period October 2005 to March 2008 but failed to submit any documents in proof of receipt of such input services and the said services having nexus with the output service rendered by them. (c) Show-cause notices dated 10/12/2007, 6/10/2006 were issued proposing recovery of service tax and also proposing recovery of credit allegedly availed and utilized irregularly and proposing imposition of penalties. (d) The Commissioner, by the impugned order, confirmed the demand of service tax along with interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technology Services' which was taxable only from 16.05.2008, and therefore, for the earlier period no tax can be demanded under any other category. (j) That they were involved in work relating to ERP implementation and not rendering any service as a management consultant, is evident from the findings contained in the impugned order. (k) More than 90% of their turnover during the relevant period was only export turnover. Such export of services, whether falling under the category of 'Consulting Engineer Services' or under the category of 'Management or Business Consultant Services', is not liable to service tax. The Commissioner has demanded service tax on the entire turnover merely on the ground that there was a mismatch between figures in the annual performance reports (APRs) filed with the Software Technology Parks of India and the figures mentioned in the balance sheets. The Commissioner has not given an opportunity to the appellants to reconcile the differences in the figures in the annual performance reports and those in the balance sheets. Commissioner has failed to appreciate that the figures furnished in the annual performance reports were from the pre-audited accounts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems studies, management consultancy, techno-economic studies of the project, design and development of management information systems etc. Therefore, it is not merely a case of implementing the ERP but providing other services which are in the nature of management consultant services. 4.2 The decision of the Tribunal in the case of IBM relied upon by the appellants are distinguishable from the facts of the present case. In the IBM case, the issue involved was only ERP implementation unlike in the present case where the appellant has undertaken much more activities as held by the Commissioner and hence the decision will not be applicable. 4.3 In the case of Shervani Indus. Syndicate v. CCE, Cus.&ST [2009] (14) STR 486 (Tri. - Delhi), Allahabad, the Hon'ble Tribunal while deciding the issue of providing management and technical service for the manufacture of goods, held that the activity was covered under the management consultancy service. The Hon'ble Tribunal also held that the Management has to be understood in the modern sense and not in the traditional sense as Boards of Directors etc. 5.1 We have carefully considered the submission from both sides and perused the records. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the specifications agreed upon with clients. M/s. IAPL are required to advise the parties properly and extend consultancy before, during and after implementation of ERP system for overall improvement of the organization..........." (f) In para 63 of the impugned order, it has been observed as under: "M/s. IAPL have valuable knowledge, expertise and experience in the field of ERP system implementation.' (g) In para 64 of the impugned order, it has been observed as under: "Further, 'Management or Business consultant' is supposed to be a professional rendering a service, M/s. IAPL as a professional in their field of work have profound knowledge and expertise in ERP to render service to the clients in implementation of ERP." (h) In para 65 of the impugned order, the following clauses in an agreement which according to the Commissioner, imply that the case herein is not just implementation of ERP, but extends beyond integration and management of the business affairs of the client have been extracted: "(a) M/s. IAPL are responsible for ensuring that the project contributes effectively to the business objectives of the company. (b) M/s. IAPL is required to analyse business requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirectly, in connection with the management of any organization or business in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistic management, procurement and management of information technology resources or other similar areas of management.' Consulting Engineer Consulting Engineer means 'any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering.' Information Technology Service w.e.f. 16.05.2008 "Information Technology Service" means 'any service provided or to be provided to any person in relation to information technology software for use in the course, or furtherance, of business or commerce, including I. Development of information technology software, II. Study, analysis, design and programming of information technology software, III. Adaption, upgradation, enhancement, implementation and other similar services related to info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccupy managerial position in a medical institution. It is also common that designations like works manager, sales manager, finance manager, manager legal are in use in many organizations. In other words, management can draw people from various disciplines including basic disciplines of arts and sciences. In an organization involved in development of software also there are managerial positions and some of them who have no specialization in computer may be in such posts dealing with areas like finance, human resources, etc. 8.3 Commissioner has rightly held ERP enhances enterprise wide performance, speed and competence. ERP system enables a company to take a consolidated view of its processes, thus providing, an effective decision support system. He has also held that ERP implementation services integrate various business functions of an organization. He has in fact noted that there are as many as sixty modules in ERP management. 8.4 From his findings and discussions, it is clear that the ERP software has been prepared obviously taking inputs from various domain experts such as inventory control, production engineering, finance, labour management, marketing etc. However, the softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity in the form of consultancy or advice has not been spelt out in the order. On the other hand, the Commissioner's finding is to the effect that the appellants' activities are in relation to ERP software implementation. It does not indicate that the appellants' team is actually engaged in decision making in diverse field of management such as inventory control, finance, marketing. Apparently by implementing ERP packages, they aid better coordination of various activities by the professionals in their client companies in the respective areas of management. The existing ERP software is, no doubt, adopted by the appellants to suit the organizational needs of the concerned client. In respect of some clients, some of the modules in the ERP system may become irrelevant or insignificant while some other modules may acquire higher significance and importance. 9.3 It has not been shown whether the appellants' team had necessary expertise in the field of financial management, human resource management, marketing management, production management, logistics management etc. Without confirming existence of such expertise, to conclude that they were rendering advice and consultation in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering and the services would fall under the category of consulting engineers only. Whether the doctrine of estoppel can be invoked 10.1 Commissioner has, invoking the doctrine of estoppel, held that the appellants have treated themselves as rendering the services of 'management or business consultant' and cannot be allowed to take a different stand for the following reasons: (a) The appellants have availed the benefit of Notification No. 16/2004 ST, dated 10.09.2004 during the period from 10.09.2004 to 28.2.2006. The said Notification exempted the service rendered in respect of ERP Software System by a 'management consultant' in connection with the management of any organization in any manner. (b) They have filed ST-3 returns classifying the services under the category of 'management or business consultant'. (c) The appellants have indicated the services rendered by them as belonging to 'management/business consultant services' in the export documents. 10.2 It is not proper to interpret the scope of a taxable service based on an exemption Notification. This will amount to putting the cart before the horse. First of all, the service under which the activities would fall sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner has chosen to treat as if there were no exports at all and demanded service tax on the entire turnover. As a result, the Commissioner has confirmed demands of astronomical sums! 11.2 However, the above issue becomes irrelevant in view of our finding that the demand on the domestic turnover itself is not sustainable. 12.1 Admittedly, the appellants have paid service tax on domestic turnover for the period from 01.03.2006 to 31.03.2008. This is also evident from the fact that the Commissioner has appropriated and adjusted a sum of Rs. 45,24,460/- paid by the appellants towards service tax liability as determined by him for the period from 01.06.2003 to 31.03.2008. However, he has denied credit amounting to Rs. 2.33 crores taken on input services and utilized towards payment of service tax on the ground of non-production of supporting documents. 12.2 It is not in dispute that the credit taken has been utilized for payment of service tax on domestic turnover. As we have held that the service tax itself is not payable as determined by the Commissioner, the question of disallowing the credit utilized and recovering the same does not arise. 13. In the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
