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SAP India (P) Ltd. Versus CCE

2010 (11) TMI 1042 - CESTAT BANGALORE

Appeal No. ST/394/2009 - Final Order No. 1443/2010 - Dated:- 18-11-2010 - P.G. Chacko, Judicial Member And P. Karthikeyan, Technical Member. Prakash Shah and P.B. Harish, Advs. for the Appellant P.R.V. Ramanan, Special Consultant, for the Respondent ORDER P.G. Chacko, Judicial Member 1. This appeal filed by the assessee is directed against the Commissioner's order confirming demands of Service Tax of ₹ 20,89,72,647/- against them in adjudication of show-cause notice dated 26.10.2006 fo .....

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the Finance Act, 1994, to different clients under agreements during the aforesaid period. It was also alleged that the assessee had not cared to get registered with the Department in respect of the said service or to file Service Tax returns or to pay Service Tax, all with intent to evade payment of the tax. On this basis, it was further alleged that Service Tax was leviable on the maintenance charges collected from the clients under the aforesaid agreements by invoking the extended period of l .....

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At the outset, we shall reproduce the definition of "maintenance or repair" given under Section 65(64) of the Finance Act. Prior to 16.06.2005, this definition stood as follows:- "Section 65(64) "maintenance or repair" means any service provided by - (i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorized by him, in relation to maintenance or repair or servicing of any goods or equipment, excluding motor vehicle." There was a .....

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anagement' was also brought within the net of Service Tax w.e.f. 01.05.2006 and, consequently, the service came to be known as "management, maintenance or repair" service. There were some amendments to this service also from time to time, but we are not concerned with the same. 3.0 As per Section 65(105)(zzg) of the Finance Act, "taxable service" means any service provided to any person by any person in relation to maintenance or repair, in so far as the period of dispute .....

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excluded maintenance of information technology software. It has been argued that a service specifically excluded from the definition of a taxable service (BAS), should ipso facto remain outside the purview of levy of Service Tax. The learned Counsel means to say that, as long as information technology software maintenance stood excluded from the purview of BAS, it would not be chargeable to Service Tax. The learned Counsel has contextually relied on the Board's Circular No. 70/19/2003-ST da .....

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he learned Consultant has also referred to the Hon'ble Supreme Court's decision in Tata Consultancy Service vs. State of Andhra Pradesh [2004 (178) ELT 22(SC)] wherein their lordships held that software (whether canned/branded), in any medium, should be "goods". In this connection, he has also pointed out that one of the members of the Constitution Bench had gone to the extent of holding that even customized software would satisfy the attributes of "goods". It is furt .....

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ce tax the taxable service provided to a customer by any person in relation to maintenance or repair of computers, computer systems or computer peripherals. The second Notification rescinded the first thereby rendering the said service chargeable to Service Tax. Contextually, we note that the impugned demand of Service Tax is for a period from 09.07.2004. According to the learned Special Consultant, maintenance or repair of computers and computer systems would include maintenance or repair of so .....

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The learned Counsel for the appellant has also relied on the following decisions in support of his plea that what is specifically kept out of the levy by the Legislature cannot be subjected to tax:- (i) Dr. Lal Path Lab Pvt. Ltd. vs. CCE, Ludhiana - 2006 (4) STR 527(Tri.-Del.) (upheld by the High Court of Punjab and Haryana vide [2007 (8) STR 337(PandH)] (ii) Federal Bank Ltd. vs. Commissioner - 2009 (15) STR 279 (Tri.-Bang.) (upheld by the Kerala High Court vide (2010) 34 VST 27 (Ker). 3.2. Th .....

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ice, implementation services were not subject to Service Tax under the head 'Management Consultant' service and the same were taxable under the new category of 'Information Technology Software' service, introduced w.e.f. 16.05.2008. 3.3 In the face of the above arguments of the counsel, the learned Special Consultant for the Revenue has referred to a technical literature on the subject. He has quoted from "SOFTWARE ENGINEERING - A PRACTITIONER's APPROACH" (Fourth Ed .....

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itted in response to queries from the Bench that, in the ERP regime, maintenance of software would consequentially follow planning and implementation. It is submitted that ERP implementation may require some maintenance. Broadly speaking, according to the learned Consultant, the aforesaid categories of maintenance are done once the installed/implemented software goes "live", The gist of submissions of the learned Consultant is that whatever the technocrat does for maintenance of comput .....

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ut that certain ongoing proceedings of the department, which are presently at various stages, would indicate that the Department is yet to take a definite view with regard to levy of Service Tax on computer software maintenance. In this connection, he has referred to show-cause notice No. 2923/2007 dated 13.04.2007 which sought to levy Service Tax under the head "management consultant's service" from the assessee in respect of software licencing, maintenance, consulting and trainin .....

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nue streams: Gr.III(A)/2923/07 dated 13 April 2007 1. Software Licensing 2. Software Maintenance 3. Software Consulting 4. Software Training) 4.1. The learned Counsel has also pointed out that, in respect of the same activities (software licensing, maintenance, consulting and training), the Department demanded Service Tax under the head "management consultant's service" for the period 01.04.2001 to 31.03.2004 by show-cause notice dated 06.05.2005, which was adjudicated upon against .....

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so been pointed out that, like show-cause notice No. 2923/2007 dated 13.04.2007, a subsequent show-cause notice No. 177/2008 dated 21.10.2008 involving the period 01.04.2007 to 31.03.2008 and involving the same issue is also pending adjudication. The gist of all these submissions is that the Department issued show-cause notices not only for certain periods prior to and after the period of dispute involved in the case, but also for a part of the period of dispute demanding Service Tax from the as .....

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be said that anything was suppressed by the assessee with intent to evade payment of Service Tax under the head "maintenance or repair service" during the period of dispute (July, 2004 to January, 2006). Therefore, according to the learned counsel, the extended period of limitation is not invocable in this case. 4.2. The learned Special Consultant for the Revenue has submitted that, though it would appear from show-cause notice No. 2923/2007 dated 13.04.2007 that it covers a small port .....

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to the statements of Shri Venkatesh Bhat (Assistant Finance Manager of the appellant company) in this context. Shri Venkatesh Bhat, in his statements, had not referred to any of the show-cause notices issued prior to 26.10.2006 and also had not indicated that the company was not liable to pay Service Tax under the head "maintenance or repair service" in respect of the services rendered by them to various licensees to whom software packages were granted by the company. Shri Venkatesh Bh .....

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or repair service" in relation to computer software. According to the learned Consultant, where the liability was accepted atleast for the period from October, 2005, the appellant is not entitled to resist the demand of Service Tax on the ground of limitation. It is also submitted that the material fact was not disclosed by the assessee at any stage during the period of dispute. They did not file any return during the said period covering the maintenance charges collected by them from thei .....

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or the Revenue. Accordingly, what was done by the appellant in terms of the relevant agreements (end-user licence agreements) was rendering of various services in relation to the software already installed in computer systems and made operational. According to a literature filed by the learned Special Consultant, ERP maintenance is defined as post-implementation activities undertaken from the time the system goes live until it is retired from production. Another piece of literature produced by h .....

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neering Only about 20 percent of all maintenance work is spent "fixing mistakes". The remaining 80 percent is spent adapting existing systems to changes in their external environment, making enhancements requested by users, and reengineering an application for future use. When maintenance is considered to encompass all of these activities, it is relatively easy to see why it absorbs so much effort. " It would appear from the above literature that, after the release and implementat .....

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nce" mentioned in the above literature. "Corrective maintenance" and "preventive maintenance" are two other categories of maintenance of software. It would appear from the literature that, in so far as computer software is concerned, "maintenance" is an expression of wider connotation unlike maintenance of tangible goods (for instance, maintenance of a vehicle), maintenance of a factual situation (for instance, maintenance of status quo ordered by a court) etc. .....

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taken was that software in any media would also be "goods". The question whether maintenance or repair of software was a taxable service within the ambit of Section 65 (64) of the Finance Act, 1994 was not apparently considered in any of those cases. That software (branded or customised) has the attributes of "goods" is just a postulate for us and we shall proceed accordingly. Maintenance or repairs of goods will not normally result in upgradation of its value or functional .....

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nance (enhancement) cannot be limited to the scope of maintenance of goods. Therefore, in our considered view, the expression "maintenance or repair", when used in connection with computer software, has a wider import than when used in connection with tangible goods. In this view of the matter, we would now have a look at the new levy introduced on 16.05.2008. 5.2. "Information technology software" is seen defined under Section 65 (53a) of the Finance Act, 1994 as follows:- 6 .....

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rson in relation to information technology software for use in the course, or furtherance, of business or commerce, including- (i).................... (ii).................... (iii) adaptation, 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 implementation of a system, specifications fo .....

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tware. The new levy w.e.f. 16.05.2008 is in relation to information technology software. The question is whether the computer software and information technology software were treated differently or as same by the legislature. At this juncture, our mind travels to an explanation added to Section 65(64) of the Finance Act, 1994. This explanation which was added w.e.f. 01.06.2007 reads as follows:- "For the removal of doubts, it is hereby declared that, for the purposes of this clause. " .....

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"maintenance or repair" means any service provided by- (i) any person under a maintenance contract or agreement; or (ii) a manufacturer or any person authorized 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." (underlining added) 5.5. Going by the explanation .....

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before us, other than the literature supplied by the learned Special Consultant for the Revenue, to show that activities of the kind undertaken by the appellant during the material period would be encompassed in the ERP regime. To our mind, these are activities very much within the coverage of sub-clause (zzzze)(iii) of Clause 105 of Section 65 of the Finance Act, 1994. Any incidental advice, consultancy or assistance given by the service provider will be squarely covered by sub-clause (zzzze)(i .....

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ice given under Section 65(1 05) (zzzze) of the Finance Act, 1994. 5.6 It is settled law today that a new taxable service covered by specific entry under Section 65 of the Finance Act, 1994 will not attract levy of Service Tax under any pre-existing entry. In this connection, the Karnataka High Court's judgment in Commissioner vs. Turbotech Precision Engineering Pvt. Ltd. (dated 15.04.2010) in CEA No. 4/2007 is relevant. The Hon'ble High Court has held that the case of the assessee fell .....

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