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Persistent Systems Ltd Versus Commissioner of Central Excise & Service Tax, Pune - III

2016 (3) TMI 402 - CESTAT MUMBAI

Taxability of maintenance and repair services relating to information technology software till December 2007 - Held that:- The articulation of legislative intent sought to be derived from this decision by the Central Board of Excise & Customs may not be tenable to the extent that it exceeds the compass of the cited decision. Therefore, the cited circular, relying as it does on the cited decision, does not permit for taxability of any software other than ‘canned software' and reliance on that cir .....

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core programs of a system. ‘Information technology software' is essential for smooth running of the business activities of the user. Thus the clients of the appellant in this case would be users of ‘information technology software' and hence any maintenance of that software would be taxable only after 16 th May 2008 as decided by this Tribunal in re SAP India Pvt. Ltd. - The demand under ‘maintenance or repair services' in the impugned order does not survive. - Demand set aside - Decided in .....

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to quash the demand of tax and interest therein, appropriation of the amounts paid by the appellant before issue of the show cause notice, and imposition of penalties under section 77 and 78 of Finance Act, 1994. 2. Though the impugned order relates to confirmation of demand of tax for rendering of maintenance and repair services' for the period from 15 th March 2005 to 31 st December 2007 and of support services of business or commerce' for the period from 1 st May 2006 to 30 th Septemb .....

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roducts for licencees. The clients require regular upgrading and enhancement of software installed on their systems to enable optimum performance for which they enter into maintenance contracts with the appellant. The servicing is carried out by employees in the Software Technology Park facility who use the internet to access the remote system and work on the remote installations. It is the consideration received in accordance with these contracts that are in dispute. 4. The primary contention o .....

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Pvt. Ltd v. Commissioner of Central Excise Bangalore [2011 (21) STR 303 (Tri-Bang)] which placed all activities relating to maintenance of software within the coverage of section 65 (64)(ii)(b) and not the head under which the demand has been confirmed in the impugned order. 5. The Tribunal after examining the various amendments and the taxability of information technology software' reasoned that with the introduction of tax by section 65(105)(zzzze) on information technology software', .....

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; the clarification in the latter that maintenance of software was not taxable under section 65(105)(zzg) of Finance Act, 1994 was held to be no longer valid after the decision of the Hon'ble Supreme Court in Tata Consultancy v State of Andhra Pradesh [2004 (178) ELT 22 (SC)] holding that canned' computer software is goods. Further reliance was placed on the decision of the Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd v Union of India [2006 (2) STR 161 (SC)] . 7. We note that th .....

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scope of taxability for rendering maintenance or repair services' as well as the issue settled by the Tribunal in re SAP India Pvt. Ltd needs to be examined to resolve the dispute before us. 8. With effect from 1 st July 2003 maintenance or repair service' was taxable as per section 65(105)(zzg) of Finance Act, 1994 with maintenance or repair' defined in section 65(64) therein. The definition underwent a change on 16 th June 2005 which is not germane to the present dispute. The taxab .....

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goods …. and the Explanation therein with effect from 16 th May 2008 read as: For the removal of doubts, it is hereby declared for the purposes of this clause - (a) goods' includes computer software'; (b) properties' includes information technology software' 9. The widening of the tax net by increasing the services that were liable to tax since its inception in 1994 demonstrates clear legislative intent in not taxing services unless and until their incorporation in section .....

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; with goods', the maintenance or repair of which was taxable from an earlier date and equated information technology software; with property' only when information technology software' was made taxable prompted this Tribunal to draw a distinction between the two and hold that the activities of M/s SAP India Pvt. Ltd, which is distinguishable from the activities of the appellant before us only by the clients being overseas, was liable to tax from 16 th May 2008. 10. We are, therefore .....

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ise & Customs which was issued consequent to the decision of the Hon'ble Supreme Court in re Tata Consultancy cited supra. 11. The finely tuned calibration that is demonstrated by the Supreme Legislature in the taxing of various services since 1994 is patently not reflected in the manner in which tax collection is sought to be enhanced by the Central Board of Excise & Customs (or, more probably, by overreach on the part of field offices by confusing the two categories of software). U .....

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as apparent in the later inclusion of information technology software' in section 65 (105) of Finance Act, 1994. The circular relied upon by the learned Authorized Representative appears to be more of an opportunistic attempt to increase revenue rather than a deliberated interpretation of legislative intent. Certainly, in the light of subsequent distinguishing between the two categories of software for taxation, this would appear to be so. Pellucid articulation of interpretation in circulars .....

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berately desistd from refining upon the different thus: "25. At this stage it must be mentioned that Mr. Sorabjee had pointed out that the High Court has, in the impugned Judgment, held as follows: ".......In our view a correct statement would be that all intellectual properties may not be 'goods' and therefore branded software with which we are concerned here cannot be said to fall outside the purview of 'goods' merely because it is intellectual property; so far as  .....

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ement with Mr. Sorabjee when he contends that there is no distinction between branded and unbranded software. However, we find no error in the High Court holding that branded software is goods. In both cases, the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed etc. Thus even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this aspect and express no opi .....

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ion. Therefore, the cited circular, relying as it does on the cited decision, does not permit for taxability of any software other than canned software' and reliance on that circular cannot appreciably sustain the findings in the impugned order. 14. 'Goods' are, therefore, and more particularly in the context of the new taxable entry of 2008, restricted to computer software, which appears to be interchangeable with proprietary software, whose maintenance alone is liable to be taxed p .....

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