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M/s Infosys Technologies Ltd. Versus Commissioner of Central Excise, Pune-I

Rejection of Refund Claim under Rule 5 of Cenvat Credit Rules, 2004 100% EOU Period pertaining to July 2005 to December 2005 - Maintenance or Repair of Software (MRS) - Refund not claimed on software development and software consultancy Appellant stated that maintenance of software is a taxable service under category of 'management, maintenance or repair service' under Section 65 (64) Revenue contends that appellant could not have got refund under Rule 5 but they could have got rebate un .....

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vice claimed is provided - Commissioner (Appeals) did not examine all contracts in order to decide whether the activity is of "maintenance or repair" and has to quantify separately the amount involved relating to maintenance and repair service as also other service - It is necessary to examine whether appellant is eligible for availing the credit under Rule 3 before granting of refund under Rule 5 - Matter remanded back to Commissioner. - Appeal No. ST/126/08 - Dated:- 29-9-2015 - Anil Choudhary .....

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ellant is a 100% EOU-STP unit engaged in exporting services, namely, Software Consultancy, Development of software, Maintenance or Repair of Software (MRS) and Management Consultant in relation to ERP software implementation service. Due to export of such services, the CENVAT Credit of Service Tax paid on input services gets accumulated. 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 Se .....

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rom Service Tax. He came to this conclusion holding that the services provided by the appellant are classifiable under Business Auxiliary Services and Consulting Engineers Service. And, both these services as defined in Sections 65(19) and 65(105)(g) respectively of the Finance Act, 1994 categorically excluded software development 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 p .....

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on-taxable. 3. Heard both sides. 4. The learned Counsel for the appellant explained that at the initial stage itself they had deleted the amount of refund attributable to CENVAT Credit on input services used in the export of the exempted services, namely, software development and software consultancy. According to him, the appellant had actually provided and exported the Maintenance and Repair Services under Section 65(105)(zzg) and Management Consultancy Services in relation to ERP implementati .....

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judgment in the case of TCS vs. State of Andhra Pradesh - 2004 (175) ELT 22 (SC), Board clarified vide Circular No. 81/2/2005-ST dated 7.10.2005 that branded/un-branded/canned/customized software incorporated in a media for use is to be treated as "goods". In this view of the matter, it was also clarified by Board that 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 Couns .....

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ins Infosystem Ltd. - 2013 (32) STR 356 (Tri-Mum), wherein under the same set of facts it was held that 100% EOU-STP unit were entitled to refund of unutilized credit. He also relied on the Hon'ble Karnataka High Court's decision in the case of mPortal India Wireless Solutions Pvt. Ltd. vs. Commissioner of Service Tax - 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 le .....

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ese two services are defined as under:- "(g) to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering including the discipline of computer hardware engineering but excluding the discipline of computer software engineering. (zzg) [to any person], by any person in relation to management, maintenance or repair." Revenue's contention is that because the Consulting Engineers Service specifica .....

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ssification of ERP Software system under Section 65(105)(r) cannot be doubted because Notification No. 16/2004 which exempted such software itself classified the services as provided by Management Consultant in connection with the management of any organization. Therefore, such service is taxable. It is a different matter that 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 credi .....

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nance or repair service. In fact, the appellant submitted technical literature to the appellate authority as admitted in the impugned order in para 7. The appellant also pleaded that there are hundred of contracts involved and the contracts need to be examined properly instead of stating that the contracts were highly technical. 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 a .....

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the removal of residual errors that are present in the product when it is delivered, as well as errors introduced into the software during its maintenance. Adoptive maintenance, involves adjusting the application to changes in the environment (e.g., a new release of the hardware or the operating system or a new database system). 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 t .....

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ght not to be equated with maintenance or repair of goods. Merely because the maintenance or repair leads to some modified software does not necessarily imply that there is no 'maintenance or repair' of the software. Thus, it appears that the software in question could be categorized under the Maintenance or Repair service. 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 issu .....

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hellip;………… (i) ………………. (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004." Rule 2(l) defined 'input service' as "As per Rule 2(1) of Cenvat Credit Rules, 2004 'input service' means any service; i) used by a provider of taxable service for providing on output service; or ii)..................... The ap .....

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d by the manufacturer or provider of output service towards payment of, (i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or (ii) service tax on output service, And where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount 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 o .....

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was permissible only to manufacturers and service providers could take the route of Notification No. 12/2005, which provided for rebate. The case of KPIT Cummins Info System (supra) does not support the appellant because this judgment related to the period April, 2007 to March, 2008 after the amendment under Rule 5. The Commissioner (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, .....

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al India Wireless Solutions Pvt. Ltd. (supra) does not support appellant's case because the Hon'ble High Court did not have the occasion to consider the definition of Rule 3 during the material time. The Hon'ble Karnataka High Court only held that refund of input service credit may be allowed, even though the export 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 admis .....

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t;management, maintenance or repair" means any service provided by- (i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorised by him, in relation to,- (a) management of properties, whether immovable or not; (b) maintenance or repair of properties, whether immovable or not; or (c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle;] [Explanation.- For the removal of doubts, it is hereby de .....

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ftware service itself was introduced under Section 65(105)(zzzze) only with effect from 16.5.2008. Therefore, prior to the above amendment in the definition of 'Management, Maintenance or Repair Service' and introduction of 'Information Technology Software' service, we have to respect the law and circulars prevalent 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 .....

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exclusion clause of Consulting Engineers Service falling under Section 65(105)(g). We note that the appellant submitted detailed literature in support of their claim that the service provided is to be categorized under Management, Maintenance or Repair service. The Commissioner (Appeals) has made only passing reference to the 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 .....

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h refund has been claimed. Even if the analysis needs to be done in respect of a very large number of contracts involved, the same must be done for each contract in the interest of justice. 6. In view of our observations and findings in foregoing paragraphs, the matter is remanded back to the Commissioner (Appeals), who should 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 .....

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CS Vs. State of Andhra Pradesh (supra), judgment dated 5.11.2004 have held that software is goods. Further, the judgment of the Hon'ble Supreme Court is binding on all the Court below including the Revenue authorities under Article 141 of the Constitution of India. There is no doubt that the management, maintenance and 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 .....

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e is concerned, under Section 65(64) read with Section 65(105)(zzg) and 65 (105)(r). 9. Further, I also agree with the ruling of the Hon'ble Karnataka High Court in the case of mPortal India Wireless Solutions Pvt. Ltd. (supra), wherein the Hon'ble High Court has held that in the case of export of software, the non-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 .....

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classifying the services under 'Consulting Engineers Service'. 10. Further, my finding is that the amendment under the definition of 'Management, maintenance or repair service' under Section 65(64) of the Finance Act, 1994 w.e.f. 16.5.2008 is clarificatory and/or explanatory in nature, in view of the ruling 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 .....

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en the two Members, the 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.4 dated 7.3.2006 read with Circular No. 81/2/2005-Service Tax, which provides that service tax is applicable on 'maintenance or repair of software se .....

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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 refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules is available when Rule 3 permitted credit on input services only to provider of taxable services. 2) Whether output .....

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on 5.6.2015) ST/126/08 M/4702/15/STB Date of Hearing: 9.9.2015 For the Appellant : Shri N Anand, Adv. For the Respondent : Shri D V Nagvenkar, Additional Commissioner (AR) 12. Brief facts of the case are already elaborated in the order of Member (Technical) and are not being repeated for sake of brevity. The points of difference of opinion are also written in para 11 above and are not being repeated. 13. The case was heard at length. 14. The learned counsel for the appellant submitted that the .....

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g there is no difference in the opinion of Member (Judicial) and Member (Technical). He further submitted that the issue whether computer software are goods or not is already settled by the Hon'ble Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh reported in 2004 (178) ELT 22 (SC) and in view of the said position, the management, maintenance and repair of the computer software were taxable service during the relevant period and therefore they are entitled to .....

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ted in - 2014-TIOL-1836-CESTAT-BANG.; v) Repro India Ltd. vs. UOI reported in 2009 (235) ELT 614 (Bom.); vi) Zenta Pvt. Ltd. vs. CCE reported in 2012 (284) ELT 45 (Tri. -Mum.); vii) Dell International Services Pvt. Ltd. vs. CCE reported in 2010 (17) STR 540 (Tri. - Bang.); viii) Tata Consultancy Services vs. State of Andhra Pradesh reported in 2004 (178) ELT 22 (SC) ; ix) Choudhary International Pvt. Ltd. vs. CST reported in 2015 (39) STR 170 (Tri.-Mum.); x) WNS Global Services (P) Ltd. vs. CCE .....

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d counsel also submitted that this Tribunal in the case of Choudhary International Pvt. Ltd. vs. CST reported in 2015 (39) STR 170 (Tri.-Mum.), where I was one of the members has already held that maintenance of software is a taxable service under the category of 'management, maintenance or repair service' under Section 65 (64) and in view of the said decision, issue is already settled. 14.2 Learned counsel further submitted the issue that at the relevant time they as service provider we .....

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te in terms of Notification No. 12/2005-ST dated 19.4.2005 and the two schemes have procedure prescribed therein and the two procedures are somewhat similar with minor variations. 15.2 It was also submitted by the learned AR that there is no dispute that computer software recorded on a media are goods as already held by the Hon'ble Supreme Court. However, what the Member (Technical) has observed, which is also the findings of the original authority and the first appellate authority that the .....

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o either consultancy work or purely software development work. Obviously these cannot be covered under the category of management, maintenance or repair service. In view of the said position, it is important to go through each invoice and corresponding agreement and determine the correct category of service at the relevant time. 15.3 The learned AR further submitted that even in the case of ERP implementation service, this Tribunal in the case of IBM India Pvt. Ltd. vs. CST, Bangalore reported i .....

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rt, even the service relating to the ERP implementation cannot be considered as management consultancy service so as to become taxable. 15.4 The learned AR further submitted the following case laws in support of his various contentions, - i) SAP India Pvt. Ltd. vs. CCE, Bangalore-III reported in 2011 (21) STR 303 (Tri.-Bang.); ii) Phoenix IT Solutions Ltd. vs. CCE, Visakhapatnam reported in 2011 (22) STR 400 (Tri.-Bang.); iii) Nokia (I) Pvt. Ltd. vs. CC, Delhi reported in 2006 (1) STR 233 (Tri. .....

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s. I find that there is no dispute whatsoever that the computer software recorded on a media are goods as held by the Hon'ble Supreme Court in the case of Tata Consultancy Services (supra). In fact the said decision of the Hon'ble Supreme Court has already been noted while passing the order by the Commissioner (Appeals). As would be observed, by the order of the Commissioner (Appeals) as also the original authority, the appellant has not given the invoice-wise agreements and the classifi .....

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appellant's main argument is that maintenance and repair of software is not as simple as maintenance and repair of tangible goods. The maintenance and repair of software may involve development and design of software but because of this, maintenance of repair service does not loose its character. I find that the literature submitted by the appellants support this view. But what needs to be ascertained is whether contracts and agreements reveal that they are essentially regarding maintenance .....

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Master agreement No. PHX-9-30-02JW-001 dated 1.1.05 mentions the appellant's name as consultant and further it states Master agreement for Consulting Engineer. Contract with BT Global service mentions the scope of work as high level Design Support, Low Level Design, Development, UAT support. The appellants have not refuted these observations of the lower authority. They have only referred to one contract namely M/s. Anthem Health Plans of Virginia Inc to claim that they were rendering servic .....

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relating to development of software or consultancy service. Since invoice wise/agreement wise facts are not clear, I entirely agree with Member (Technical) on point No. 3 that the Commissioner (Appeals) did not examine all the contracts in order to decide whether the activity is of "maintenance or repair" only and therefore the case should be remanded back to him to enable him to examine all the contracts before arriving at a decision that whether or not the appellant was providing tax .....

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