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TMI Blog2012 (7) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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. This is being contested by the appellants stating that they have produced the necessary documents t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem. ( 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 imposed penalties as mentioned earlier. 3.1 Shri Arvind Dattar, learned Sr. Counsel assailed the order of the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1994 stood amended to exclude service provided by a consulting engineer in the discipline of computer hardware engineering or computer software engineering from the purview of taxable service. ( i ) Alternatively, he submits that the activities of ERP implementation is covered under the category of 'Information 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 328 to contend that the Tribunal cannot change the view and depart from a finding arrived at earlier except for cogent reasons. 4.1 Learned Joint CDR took us through the relevant portions of the order of the Commissioner and added that the appellants undertake running of electronic data processing centres, business of data processing, word processing, software consultancy, training systems 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP ERP elsewhere, and has agreed to provide to the company, implementation of my SAP ERP." ( e ) In para 62 of the impugned order, it has been held as under: "Thus a plain reading of the objectives of the agreements, it is seen that M/s. IAPL are engaged in providing services to the clients to develop suitable organization to identify professional expertise in diverse areas including finance, taxation etc. M/s. IAPL are required to conceptualise devise, plan the ERP systems as per 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy Service'. Management Consultant w.e.f. 16.10.1998 "Management Consultant" means 'any person who is engaged either directly or indirectly in connection with the management of any organization in any manner and includes any person who renders any advice, consultancy or technical assistance relating to conceptualizing, devising development, modification, rectification or upgradation of any working system of any organization.' Management or Business Consultant w.e.f. 16.05.2008 "Management or Business Consultant" means 'any person who is engaged in providing any service, either directly or 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s across a number of organizational sub-units in a coherent and coordinated manner. Having noted the scope of the term 'management' he concluded that the role of a management or business consultant is to advise the organization to improve its operational efficiency and that such advice could be for lower management level or top management level or in the nature of policy. 8.2 It is common knowledge that in an organization, managerial positions can be occupied by people from different disciplines An engineer with his knowledge of engineering intact can move up the ladder in the managerial line. Similarly, a medical doctor with his expertise with medicine can occupy 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has actually procured ERP packages, their activities begin. It is their categorical submission that they are in no way concerned in relation to ERP planning or advice on behalf of their clients. 9.2 We find that the department has not contacted any of the clients of the appellant and obtained their version as to whether the appellants have rendered any advice or consultancy in relation to choosing of the requisite ERP packages. It has not been shown from any of the agreements that they contain obligation on the part of the appellants to engage for ERP planning and advice or any other consultancy. The basis on which Commissioner has come to the conclusion that they are undertaking any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants and the particular clients and based on evidence collected either by contacting the clients or otherwise. In this case, the evidence relied upon does not show that the appellants have rendered any advisory role and that too in the field of 'management/business consultancy'. 9.7 The appellants are actually implementing applications software like SAP, Oracle, people soft. They are also into upgradation of application software from existing release level to higher version. They are also specifically into running of electronic data processing centre, business of data processing, word processing etc. Even if there is any advisory role, the 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed against them. We are not in agreement with the view of the Commissioner invoking the doctrine of estoppel, as it is a settled principle that such doctrine cannot be invoked in taxation matters. 11.1 The appellants have claimed that they have exported services valued at about Rs. 428 crores as against services worth about Rs. 36.6 crores rendered by them in DTA during the period 01.06.2003 to 31.03.2008 as recorded in para 20 of the impugned order. Commissioner has ignored this claim merely on the ground that value of services as per APR's and balance sheets slightly varying. It has not been shown that the stages of accounting in APR's and the balance sheets are identical. Instead of giving opportunity to reconcile the differences, the Commissioner 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement/business consultant". ( c ) The 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. ( d ) The dispute before the Commissioner was whether the activities fall under the category of consultant Engineers service or fall under the category of "management consultant"/"management/business consultant". The demand has been made only on the ground that the services rendered by them fall under the category of "management consultant"/"management/business consultant" which decision has been held to be not sustainable. Therefore, the issue whether the activities could be treated as covered under 'Information Technology Services' which became taxable w.e.f. 16.05.2008 and consequently not taxable under any other category for the period prior to 16.05.08. need not be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CHACKO, M. VEERAIYAN, JJ. ORDER M. Veeraiyan, Technical Member This is an appeal against the order of the Commissioner of Customs, Central Excise and Service Tax, Hyderabad No. 10/2009-ST (Commr) dated 31.12.2009. The Commissioner by the impugned order confirmed demand of service tax of Rs. 67,30,132 for the period 1.4.2003 to 31.5.2003 and Rs. 53,33,39,143/- for the period 1.6.2003 to 31.3.2008 (excluding the period from 10.9.2004 to 28.2.2006 when the appellants availed the benefit of notification No. 16/2004 ST dated 10.9.2004) under the category management consultant/management and business consultant services. By the same order a sum of Rs. 2.33 crores stands confirmed holding that Cenvat credit availed/utilized on input services during the period -March 2006 to March 2008 were not eligible. Interest has also been ordered to be recovered in respect of the above demands. Equal amount of penalty stands imposed under Section 78 of the Finance Act. In addition, penalty under Section 76 (wrongly mentioned as section 77) stands imposed. A sum of Rs. 45,24,460/-paid by the appellants on domestic turnover during the period March 2006 to March 2008 stands appropriated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b ) The details of yearly revenue break-up for the relevant period as furnished to the department were as follows: As per APRs (in Rs. '000) As per Balance Sheets (in Rs. '000) Year Domestic Export Domestic Export 2002-03 62775 657014 64127 655664 2003-04 57989 744284 38519 763755 2004-05 59373 1088113 59373 1088113 2005-06 55606 1266126 55606 1266126 2006-07 143535 1349460 151699 1347237 2007-08 143005 1552050 141352 1561010 Total 522285 6657048 510688 66811916 717,93,34 719,26,04 ( c ) The above services were rendered after the clients have taken decision to procure ERP packages or after the clients have procured t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exports. Therefore, demand of service tax treating the said exports on par with services provided in the domestic area was not justified. 3.2 They have, during the period March 2006 to March 2008, paid service tax on domestic turnover and availed CENVAT credit of service tax amounting to Rs. 2,42,40,299/- and out of the above, they utilized credit of Rs. 2,40,22,628/-. During the said period they paid in cash service tax amounting to Rs. 1,78,12,469/- along with education cess of 3,32,055/-. The Commissioner, in para 89 of the order-in-original, has denied the credit on the ground of non-receipt of documents which is not legally sustainable as relevant details were available from the ST-3 returns. 3.3 He relied on the following decisions of the Tribunal. ( a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy 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 particular category of services. As rightly pointed out by the learned senior advocate for the appellants, the Commissioner, in his order itself, has given detailed findings on the nature of activities undertaken by the appellants. It may be appropriate to reproduce and summarize the same: ( a ) In 3(i) of the impugned order, it has been recorded that M/s. IAPL provided the services of: "( i ) implementation of application software like SAP, Oracle, Peoplesoft etc. ( ii ) support of application system to remove operational constraints." ( b ) In para 24 of the impugned order, it has been observed as under: "As detailed earlier, M/s. IAPL are engaged in devising, providing and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner, 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 proposition that implementation of ERP is basically done by a 'Management Consultant'. The other is, even if it is conceded that ERP can be provided by other class or category of consultants like 'Consulting Engineer', the terms of the agreements herein make it clear that such implementation is in connection with the management of the organization." Issues for consideration 6. In the light of the above findings of the Commissioner, the following issues arise for determination. ( a ) Whether the activities undertaken by the appellants should be treated as in the field of engineering or in the fie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 "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 of a system, specifications for a database design guidance and assistance during the start-up phase of a new system, specifications to secure a database, advice on proprietary information technology software, V. Acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products, VI. Acquiring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from other domain groups. 8.5 In the instant case, the appellants are not the "manufacturer/producer" of ERP software. They were basically into implementing after suitably adopting the ERP software and after customizing the ERP package to soft the needs of individual clients. This requires utilizing skilled technical team and the skill required is in the field of engineering rather than in the field of other areas of management such as finance, marketing etc. 8.6 Alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 areas of management. Apparently the clients are medium or big business houses having expertise in the areas of operation undertaken by them. The implementation of ERP packages is more in aid of coordination of various branches/wings of the organization by proper and timely flow of information of their various activities. 9.5 The role of advisor is distinct from the role of a person implementing. The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 10.09.2004 during the period from 10.09.2004 to 28.02.2006 is not an issue to be decided by us. We have already held that they were not rendering advice and consultation in areas of management and therefore, they cannot held to be rendering any service as management consultant. 10.3 The Commissioner has also noted that the appellants themselves have indicated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the "manufacturer/producer" of ERP software. The appellants' clients procure ERP packages from the market and the appellants are involved basically in the implementation of ERP packages after suitably adopting the ERP software. Their work involved customizing the ERP package to suit the needs of individual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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