TMI Blog2020 (12) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... s brought on statute w.e.f. 16.05.2008. Further, the same activity of the appellant was earlier classified under Consulting Engineer Service for the period 07.07.1997 to 27.02.1999 which was upheld by this Tribunal in BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [ 2006 (3) TMI 1 - SUPREME COURT ] thereafter, there was exemption from March, 1999. Subsequently, for the period 16.10.1997 to 31.03.1998 the said activity was classified as Management Consultant Service. Further, admittedly the appellant is paying service tax under the head Information Technology Software Service w.e.f. 16.05.2008 which is not disputed by the Department. It is an accepted principle laid down by the Apex Court in COMMR. OF C.E. CUSTOMS SER TAX VERSUS M/S FEDERAL BANK LIMITED [ 2016 (3) TMI 354 - SUPREME COURT ] wherein affirming the order of the Kerala High Court that there was new head of service tax noticed and unless the same is carved out from the existing entry, the service tax under the said head cannot be said to be exigible prior the date of its enactment under any other existing head. The service in question is not taxable under the head franchisee service rather taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to make certain payments to SAP AG, Germany which was mostly from consideration received from the clients to whom the software was marketed. In this proceeding, Revenue is seeking to tax such payments made, under provisions of Section 66A of Finance Act, 1994 (reverse charge mechanism), on the basis that the appellant was receiving franchisee service from SAP AG, Germany, and when they were dealing with the clients in India who use SAP software, they were acting as franchisee of SAP AG, Germany. 4. The Counsel for the appellant submits that the payments made to SAP AG, Germany is towards licensing of the software developed by SAP AG, Germany. The payment is also towards charges of continuous upgradation of the software, that is being done by SAP, Germany which is being passed on to the licensees (end users) as per the agreement at the time of licensing, for which they continue to make payment as per the agreement. He argues that this activity amounts to licensing of copyrights and it cannot be brought under the definition of franchisee service , and therefore, the demand made is not sustainable. 5. The Counsel for the appellant submits that the said activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 65(105)(zze) : Taxable service means any service provided or to be provided to a franchisee, by the franchisor in relation to franchise; 7. According to the Counsel, the appellant is not selling the software, but is only granting a license to use the software. Further they are not doing any service or process identified with the SAP, Germany, when they are passing on the updates to the software as development by SAP, Germany. A franchisee, sells or manufactures goods representing himself to be of the same capacity as the franchisor. While licensing the software they do not represent themselves to be SAP Germany. They Act only as their agents. In the case of franchise service, the franchisee actually provides the service of the same quality as is provided by the franchisor, and the franchisor controls the quality of the services through their own control mechanisms. In the case of sale of a product manufactured by one person to another person, an intermediary cannot be considered as a franchisee. Therefore, the activities which are impugned in the present proceeding, in the first place, is not a sale but only licensing of softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, the appellants are acting as a franchisee of SAP, Germany and, therefore, the impugned order confirming the service tax demand is maintainable. He further relies on the ruling in Timken India Limited vs. CCE, Jamshedpur -2018 (11) TMI 1382- CESTAT Kolkata . 10. Having considered the rival contentions, we find that the appellant is making payment to SAP, Germany in terms of Article 6.1, 6.2 and 3.7.2 of the agreement between them, noticed hereinabove which is payment towards license fee for use of software by the client in India for the software developed by SAP, Germany and 3rd party database / software and also towards support services for software which is essentially for upgradation of the software and for fixing technical difficulties encountered while using the software. Amount paid under Article 3.7.2 is for use of SAP software by appellant itself to SAP, Germany. We find that the services squarely covered in the forecorners of the definition of Information Technology Software Service as defined under Section 65(105)(zzzze) of the Finance Act, 1994, which was brought on statute w.e.f. 16.05.2008. 10.1 We further find that the same activity of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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