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2015 (6) TMI 741 - CESTAT MUMBAI

2015 (6) TMI 741 - CESTAT MUMBAI - TMI - Denial of refund claim - Classification of service - Consulting Engineers Service or Maintenance or Repair Service - Difference of opinion - matter is placed before the Hon'ble President for reference to the Third Member on the following points:-

(i) Whether under the facts and circumstances, software will be treated as 'goods' w.e.f. 9.7.2004 in view of clarification vide Ministry of Finance, Department of Revenue's letter F.No. 256/1/2006-CX .....

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testing services, (iii) re-engineering services under Section 65(105)(r), (iv) consultation and management in respect of ERP software implementation, and accordingly entitled to refund, as claimed, the services being admittedly exported.

And

As the appellant have rendered taxable services under Section 65(105)(zzg), the appellant have rightly availed CENVAT Credit under Rule 5 of Cenvat Credit Rules, 2004 as held by Member (Judicial).

Or

1) Whether re .....

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ce or repair' only, should not the case be remanded back to him to enable him to examine all the contracts before arriving at a decision on the issue at 2 above. - Appeal No. ST/126/08 - Dated:- 5-6-2015 - Anil Choudhary, Member (J) And P S Pruthi, Member (T),JJ. For the Appellant : Shri A Anand, Adv. For the Respondent : Shri D Nagvenkar, Addl Commissioner (AR) ORDER Per: P S Pruthi: The appellant is in appeal against the impugned order of Commissioner (Appeals),who had upheld the order of the .....

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cumulated. Therefore, the appellants filed two refund claims for refund of input service tax credit under Rule 5 of the Cenvat Credit Rules for the period July, 2005 to Sept. 2005 and for the period October, 2005 to December, 2005. Later, the appellants revised the amount of refund claim and reduced the claims to ₹ 2,47,27,422/- and ₹ 32,34,635/- respectively as they realized that the refund of CENVAT Credit attributable to inputs used in the non-taxable output services namely, softw .....

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ent and Computer software engineering from their coverage during the period in dispute. Hence, being non-taxable, CENVAT Credit is not available on the input services as per Rule 3 which allows credit only to provider of taxable services and as per Rule 6(1) of Cenvat Credit Rules, which bars availment of CENVAT Credit used in the exempted services. The Commissioner (Appeals) agreed with the order of the adjudicating authority holding that the service provided/exported does not fall in the categ .....

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llant had actually provided and exported the Maintenance and Repair Services under Section 65(105)(zzg) and Management Consultancy Services in relation to ERP implementation under Section 65(105) (r) of the Finance Act, 1994, both taxable services. He drew attention to a series of notifications and the Board's Circular on the issue of Maintenance and Repair of software. Initially the maintenance and repair of computers, computer systems or computer peripherals was exempted under Notification .....

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at 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). The learned Counsel also stated that ERP software system provided by a management consultant in connection with the management of any organization is exempted under Notification No.16/04-ST dated 10.9.2004 and therefore is clearly a taxable service. Therefore, refund of input credit accumulated due to export of Maintenance and Repair Service, E .....

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- 2012 (27) STR 134 (Kar), wherein it was held that on export of software service, asessees were entitled to refund even when the service exported is not taxable. 4. The learned Addl. Commissioner (AR) reiterates the findings of the Commissioner (Appeals). 5. We have carefully considered the submissions made by both sides. 5.1 The appellants contend that the software exported by them is classifiable under the Maintenance or Repair Service covered under Section 65(105(zzg), whereas the Commission .....

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) [to any person], by any person in relation to management, maintenance or repair." Revenue's contention is that because the Consulting Engineers Service specifically excluded Software Engineering from its scope during the relevant period, therefore, the same is non-taxable. By holding the output services to be non-taxable, it was concluded that CENVAT Credit on input services is not admissible under Rule 3 and Rule 6 and therefore, refund of accumulated CENVAT Credit under Rule 5 of Ce .....

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the service is exempted. 5.3 As regards the service, namely, Software Development and Software Consultancy, the appellant is not claiming refund on the input service credit in respect of these output services, which are non-taxable as they are excluded from the definition of Consulting Engineers Service, as discussed above. 5.4 As regards the remaining software service, which appellant have termed as 'management, maintenance or repair of software service, we find merit in appellant's co .....

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l. We also note that the appellant was registered with Service Tax Department under the category of 'Maintenance and Repair Service' which was never questioned or annulled. The appellant also explained to the lower authorities the meaning of 'software maintenance' which, according to the technical literature submitted by them is described hereunder:- "Software maintenance may be defined by describing four activities that are undertaken after a program is released for use viz .....

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). Finally, perfective maintenance, involves changing the software to improve some of its qualities. Hence, changes are due to the need to modify the functions offered by the application, add new functions, improve the performance of the application, make it easier to use, etc. The requests to perform perfective maintenance may come directly from the software engineer, in order to improve the status of the product on the market, or they may come from the customer, to meet some new requirements.& .....

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vice. The software relating to software development and software consultancy was, in any case, deleted from the refund claim by the appellant. 5.5 Before analyzing the issue further, we may refer to the relevant provisions of law as they stood during the material time. The period of dispute in this case is July 05 to Dec. 05, CENVAT Credit is allowed under Rule 3 of the Cenvat Credit Rules, 2004. During the material time, Rule 3 stated that - "A manufacturer or producer of final products or .....

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t Credit Rules, 2004 'input service' means any service; i) used by a provider of taxable service for providing on output service; or ii) ..................... The appellant sought refund under Rule 5 of Cenvat Credit Rules, 2004. Rule 5 as it stood during the material time stated that - "where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product .....

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subject to such safeguards, conditions and limitation, as may be specified, by the Central Government, by notification." It is clear from the above Rules that credit on input services was allowed only to provider of taxable service. Further, the refund under Rule 5 was allowed to manufacturers only. For service provider, there was a system of rebate of duty paid on excisable inputs or input services under Notification No. 12/2005-ST dated 19.4.2005. It was only in 2006, vide Notification N .....

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issioner (Appeals) in his order has examined the issue from the classification angle. He has not examined whether the refund was admissible to service provider under Rule 5, as it stood during the period in question. 5.6 Another issue to be examined is whether taxable services were provided by the appellant. This is an important point because Rule 3 permitted credit on input services only to provider of taxable services. In case, the output services which are exported are determined to be non-ta .....

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rt of software is not a taxable service. With due respect to the Hon'ble High Court, the point to be considered here is whether the input service credit itself was admissible before the refund can be considered. As shown above, Rule 3 permitted input service credit only if used for providing taxable service. Thus, it would be important to consider whether the services exported were taxable services. 5.7 We note that the Maintenance or Repair Service under Section 65(64), under which the appe .....

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intenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;] [Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this clause,- (a) "goods" includes computer software; (b) "properties" includes information technology software;]" However, during the relevant time in 2005, the definition of Maintenance or Repair service did not specifically refer to "goods" including comput .....

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valent during the material time. Board's Circular No. 81/2/2005-ST (supra) clarified that Software incorporated in a Media for use is to be treated as goods. It did not distinguish between Computer Software and Information Technology Software. In view of the Board's Circular, it would be justifiable to consider the software in question in this case as Computer Software. 5.8 Having said so, the next question which arises is whether the software in question was taxable or not. To decide th .....

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e literature and has only referred to some clauses of some of the contracts under which services were exported and came to the conclusion that the services are covered under exclusion clause of Section 65(105)(r). He has not examined why the software maintenance which includes corrective maintenance, adoptive maintenance and perfective maintenance, or enhancement and preventive maintenance or re-engineering cannot be categorized under software maintenance and repair service. He has not distingui .....

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re-examine the nature of service provided keeping in view the evidence presented by the appellant. He should also consider the provisions of Service Tax law as they stood during the material time to arrive at an appropriate decision. The impugned order is set aside and appeal is allowed by way of remand. (Pronounced in Court on .....................) Per: Shri Anil Choudhary: 7. I have gone through the order recorded by my learned brother Shri P.S. Pruthi, Hon'ble Member (Technical), as I d .....

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nd repair of goods was taxable during the period in dispute for which the appellant is claiming refund. The subsequent clarifications by CBE&C Circular No. 81/2/2005-ST dated 7.10.2005 and Ministry of Finance, Department of Revenue's dated 7.3.2006 have been issued in pursuance to the judgment of the Apex Court in the TCS case (supra). Thus, the software is required to be treated as goods through out for the purpose of levy of tax w.e.f. 05.11.2004, when the law was so declared by the Su .....

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on-taxable item, Service Tax paid on input service which remains unutilized, the exporter is entitled to refund of such unutilized credit on furnishing of the particulars of tax paid by them. Such refund cannot even be denied on the ground of limitation under Section 11B of the Central Excise Act. It was also held that the registration with the Service Tax Department is not a pre-requisite for claiming the credit and resultant refund. Further, in the facts and circumstances, I hold that the asse .....

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ing of the Apex Court in the TCS case (supra). Thus, the amendment being clarificatory in nature, will be applicable with retrospective effect i.e. from the date when the Section was brought on statute. Accordingly, I hold that the appellant have rightly taken CENVAT Credit and is entitled to refund. Thus, the appeal is allowed with consequential benefit in accordance with law. The refund shall be worked out by the adjudicating authority expeditiously preferably within a period of two months, fr .....

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