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TMI Blog2025 (4) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... h 2009, it was observed that the appellant had discharged the service tax only 25% of the bill value instead of 100%. On scrutiny of the invoices for the period prior to 2007, it was noticed that the appellant was discharging service tax on 100% of the taxable value. On further analysis of the agreement with various clients, it was observed that the software belonging to the appellant is being sold to a customer, technical support is provided for one year without any charge. From second year onwards, the customer has to pay a pre-determined amount for utilising the technical support purchased from the assessee. On analysis of the agreement relating to provision for ATS, the Department alleged that the service falls under the category of MMR service as defined under Section 65(64) of the Finance Act, 1994. Further, it is noticed that the appellant, w.e.f. 16/05/2008, is paying service tax on the right to use software under ITSS; hence, they claimed that for the earlier period, there was a transfer of right to use of the property to the customers. It is alleged that the said explanation of the appellant is incorrect, as per the agreement, the title / copyright and other software upgr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been installed. * Create a schema in the existing Database Instance to store patch information. * During configuration, give the paths of various installed solutions. * Identify one of the servers (in case various tiers spread across multiple servers) as central server from where patches will be applied to all the servers. * Stop the services before applying the patches. * Deploy patches by providing patch id typically the name of the patch delivered. * Start the services once patch is successfully deployed. * Generate the customised reports over a time span etc. 3.2. It is his contention that these activities are considered as 'Deemed Sale' in terms of Article 366(29A) of the Constitution of India and subjected to local Sales Tax (VAT) under the category of 'Works Contract'. The appellant with effect from 01/02/2007 paid VAT on 75% of the gross value of the invoice and service tax on 25% thereby complied with the local and central levies as applicable. The appellant's records were audited by the Audit Wing of the Service Tax team. By Audit Note dated 31/08/2009, it was objected to non-payment of tax on 75% of the invoice value to which they replied stating that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount/value, if sales tax / VAT has been paid on a given transaction with regard to the such amount/value: a. CST Vs. Quick Heal Technologies Ltd. [2022(63) GSTL 385 (SC)] b. Safety Retreading Co. P. Ltd. Vs. CCE [2017(48) STR 97 (SC) c. Imagic Creative Pvt. Ltd. Vs. CCT [2008(9) STR 337 (SC)] d. Wipro GE Medical Systems Pvt. Ltd. Vs. CST [2009(14) STR 43 (T)], maintained by the Supreme Court in Commissioner Vs. Wipro GE Medical Systems Pvt. Ltd. [2012(28) STR J.44 (SC)] 3.6. Learned Counsel further submitted that denial of the benefit of Notification No.12/2003-ST dt. 20/06/2003 by the learned Commissioner is devoid of merit as the learned Commissioner has misconstrued the nature of ATS transactions and has failed to appreciate that no cenvat credit was availed on any goods used to provide ATS. Learned Commissioner ought not to have questioned the payments made through cenvat account to discharge the service tax liability on ATS; by bringing the issue of cenvat into the scope of order, the learned Commissioner travelled beyond the scope of show-cause notice and made out a new case, thereby, violating the principles of natural justice; the interim order of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d over and above the implementation, installation and training services provided by the appellant to the clients with respect to their customized software Finacle for a separate consideration termed as 'Annual Technical Support' charges. A perusal of the agreements revealed that the Annual Technical Support consisted of following services. * Problem solving and Trouble shooting * Rectification of any bugs reported * Upgrades and maintenance releases of Infosys products procured by the client. * Upgrades mean subsequent improved versions and releases of the Licenced software. Upgrade may include software Trouble Report, Software Enhancement request. * Maintenance release means subsequent improved releases of the application which include fixes to software trouble reported. 4.1. It is also stated that the appellant had discharged service tax on 100% of value of "Annual Technical Support" services prior to February 2007. The appellant had also paid service tax on the 100% of value from 16.05.2008. Hence, show-cause notice dated 02/03/2010 was issued to the appellant demanding Rs.11,57,60,089/- being service tax short-paid by them on 75% of the value on "Annual Technical Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, is indeed provided free of cost as a part of the Annual Technical Support Services. According to Karnataka VAT Act, 'Sale' is defined under Section 2(29) as follows: "(29) 'Sale' with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes, - a) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; b) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; c) a delivery of goods on hire purchase or any system of payment by instalments; d) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. 4.4. It is further submitted that a perusal of the above definition clearly establishes that a transaction will be called as a sale only when there is a consideration (cash or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s towards Right to Use of goods or Sale of Goods. In fact, in view of the "free updates" envisaged in the agreement, there is no element of sale as per KVAT Act and the Rules made thereunder. Therefore, the said contract is not a composite contract in its essence. Consequently, it can be inferred that the charges received by the appellant are towards Annual Technical Support services. Hence, the question raised by the appellant regarding jurisdiction to levy service tax on the portion attributable to service in a composite contract becomes infructuous. 4.6. Countering, the reliance placed on the decision by the Hon'ble High, Court of Karnataka which refers to the said Annual Technical Support Services are works contract is misplaced since the question before the Hon'ble High Court was not whether the said activities can be considered as Works Contract but was dealing with whether the charges received towards implementation of software are chargeable to VAT and it was held that it is a pure service and no VAT is chargeable. While discussing these issues and considering the various activities of the appellant, reference was made to ATS services. Hence, it is submitted that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as submitted in the above paragraphs, the department had clarified vide Circular No.81/2/2005-ST dated 7th October 2005 that Maintenance or repair of software is a taxable service and hence, this clarification only made explicit what was already envisaged in the law. Further it is contested that reliance on UOI Vs. Martin Lottery Agencies1 Ltd.: 2009 (14) STR 593 (SC) to state that any explanation which expanded the scope of the entry can only be prospective in nature, is not tenable because only substantive law can be only prospective in nature, however, in this case, the explanation has only clarified the scope of goods of properties which further stands clarified by the Circular No. 81/2/2005-ST dated 7th October 2005 which was a consequence of the Hon'ble Apex Court's decision in the case of Tata Consultancy Services Vs State of Andhra Pradesh (Civil Appeal No.2582 of 1998) which held computer software or IT software to be 'goods'. The claim of the appellant for the benefit of the Notification No.12/2003 to deduct the value of materials is not tenable as discussed already as there was no sale of goods and no documentary proof specifically indicating the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le at no additional cost to Infosys' Licensees, who have purchases Annual Technical Support as specified in annexure-4- BANCS 2000 support services. Update shall not include any options or future products which Infosys' licenses separately. At Clause-1.6 of the agreement "upgrades" shall mean new releases of the program which would be made available at an additional cost to Infosys' licensees. Article 18 provides for support services read with Clause-4 of Annexure-3 of the same agreement; Annual Technical Support clearly mentions the following : "Annual Technical Support, per annum, will be provided by Infosys for every branch after the implementation of BANCS 2000 1.0 and associate modules, and will entitle the Bank for the following: i. Telephonic/fax consultation, assistance and advice with respect to technical queries on all weekdays. ii. Corrections to errors reported in the current version of BANCS 2000 and associate modules, as and when corrections become available. iii. Free, upgrades and updates to BANCS 2000 1.0 and associate modules as and when available during support period. iv. When Infosys introduces new functionality as a optional separately priced produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire payment by the subscriber to the service provider being for alleged transfer of a right to use goods and no payment at all for service. The licence granted by the Central Government fixes the tariff rates and all are for services. 112. Sale of Goods Act, comprehends two elements, one is a sale and the other is delivery of goods. 20th Century Finance Corporation Limited v. State of Maharashtra - 2000 (6) SCC 12 at 44, ruled that - "(c) where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) in cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods." 113. It is, therefore, unnecessary to deal with the question of delivery of possession which is related only to situs and not to subject-matter of taxation which is a transfer of right to use goods. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in the present transaction". 5.3. In the instant case, it is also a fact that prior to and after the period in dispute, the appellant is paying service tax on the entire invoice value without disputing the fact that they are discharging VAT on part of the same value. Therefore, the question of not paying service tax on the entire value during the disputed period does not arise as the entire value is exclusively towards service element. 6. It is to be noted that the Karnataka Value Added Tax (KVAT), 2003, 'works contract' did not include computer software till 01.04.2006 and from 01.04.2006 onwards programming and providing computer software was levied to 4% tax as mentioned at Sl. No. 11 of the 6th schedule and at Sl. No. 14, Service and Maintenance of IT products including telecommunications was also levied to 4% tax. This amendment has brought in view of the decision in the case of Tata Consultancy Services 2004 -TIOL- 87-CT-LB by the Hon'ble Supreme Court based on which Circular No. 17/06-07 dated 24.07.2006 was issued by the VAT authorities to incorporate computer software as part of the 'works contract' in terms of deemed sale. 6.1. Reliance placed on by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). This transaction of deemed sale has been dealt with by the Tribunal Principal Bench, New Delhi in the case of Sayaji Hotels Ltd. Versus Commissioner of C. EX., Indore 2011 (24) S.T.R. 177 (Tri. - Del.) dated 25-1-2011 in similar set of facts has observed as follows: "6. The question now arises as to whether a Mandap keeper, in whose case, the value of food & beverages served is much more that 40% of the gross amount charged for the Mandap keeper service, has option to avail of the general exemption under Notification No. 12/03-S.T. by treating the supply of food and beverages as sale. Since this is the core issue in this case, we will examine it on greater detail. 6.1 Notification No. 12/03-S.T. issued under Section 93(1) of the Finance Act, 1994, is a general exemption, which exempts a taxable service provided, from the tax to the extent of the service tax on the value of the goods and materials sold by the service provider to the recipient of service, subject to conditions that - (i) there is documentary proof specifically indicating the value of the said goods and materials. (ii) No credit of duty paid on such goods and materials sold has been taken under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htra v. Laljit Rishi Shah reported in (2000) 2 SCC 699; (b) Union of India v. Sampat Raj Dugar reported in AIR 1992 SC 1417 = 1992 (58) E.L.T. 163 (S.C.); (c) K. Prabhakaran v. P. Jayarajan reported in (2005) 1 SCC 754 = AIR (2005) 688; (d) Raymond Ltd. v. State of Chhattisgarh reported in (2007) 3 SCC 79 and (e) Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Tax (supra), in construing a legal fiction, it is not to be extended beyond the purpose for which it has been created. Since Article 366(29A) had been inserted in the Constitution of India by 46th Constitutional Amendment to enable the State Governments to charge Sales tax on supply of goods or transfer of property therein in respect of certain transactions which were involved in service contracts or were not sale as commonly understood, by deeming the same to be sale, such extended definition of sale can be construed in the context of charging Sales tax, not for understanding the scope of the word 'sale' in Service tax exemption Notification No. 12/03-S.T. For applicability of exemption Notification No. 12/03-S.T. there should be distinct "sale" of goods within the meaning of the term "sale", as defined in Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be a contract for work in which the use of materials is accessory or incidental to the execution of work; or it may be a contract for supply of goods where some work is required to be done as incidental to sale. When the contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and other for work and labour. The second type of contract is clearly a contract for work and labour not involving sale of goods, while the third type of contract is a contract for sale where the goods sold as chattel and some work was undoubtedly done, but it is done only as incidental to the sale ...." 6.1.2.1 In this case the contract of the Mandap keeper with its customers is to allow use of Mandap with all its facilities like decoration, lighting, stage, music, catering service etc. for some consideration for organizing some official, social or business function. The catering service provided is a service incidental and ancillary to the service in relation to use of Mandap and though it involves supply of food and beverages, it is essentially a service contract, not for sale of food and beverages. Thus the contract of a Mandap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specified amount for serving food and beverages to the guests of its customers, that does not become sale of food and beverages, as the intention of the contract is providing service incidentally involving serving of food and drinks to the guests of the customer and the price charged for serving of food and drinks forms part of consideration of Mandap keeper service but not the price for sale of food and drinks. 6.1.2.2 Other than merely making a bald claim that the charges for food and drinks shown in the invoices represent the value of food and drinks only and do not include the service charges i.e. the charges for serving the food and drinks, no evidence in this regard could be produced by the appellant. If in order to claim the exemption under Notification No. 12/03-S.T., the appellant claims that their transaction with their customers involves sale of food and beverages in the sense that there is transfer of possession of a specified quantity of food and beverages to the customer for a specified price, the burden of proving this was on the Appellant. No evidence was produced to show that in every case of providing service in relation to use of Mandap, the Appellant's agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that sales tax on the supply of goods involved in the said service can be levied does not mean that a Service tax cannot be levied on the service aspect of catering. In this regard paras 42, 43, 44 and 45 are reproduced below :- "42. As far as the above point is concerned, it is well settled that for the tax to amount to a tax on sale of goods, it must amount to a sale according to the established concept of a sale in the law of contract or more precisely the Sale of Goods Act, 1930. Legislature cannot enlarge the definition of sale so as to bring within the ambit of taxation transactions, which could not be a sale in law. The following judgments and the principles laid down therein can be very well applied to the case in hand. 1. M/s. J.K. Jute Mills Co. Ltd. v. The State of U.P. & Anr, (1962) 2 SCR 1; 2. M/s. Gannon Dunkerley & Co. and Ors. v. State of Rajasthan & Ors., (1993) 1 SCC 364; 3. The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1959) SCR 379; 4. The Sales Tax Officer, Pilibhit v. M/s. Budh Prakash Jai Prakash [1955] 1 SCR 243; 5. M/s. George Oakes (P) Ltd. v. State of Madras [1962] 2 SCR 570. 43. In regard to the submission made on Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 366(29A)(f) only permits the states to impose a tax on the supply of food and drinks by whatever mode it may be made and it does not conceptually or otherwise includes the supply to services within the definition of sale and purchase of goods. (2) In the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes (supra), the assessee was providing "advertising Agency's service" and was paying Sales tax on goods used in providing the service by treating the same as deemed sale. The commercial tax department wanted to include the value of service portion also in the value of goods for the purpose of charging Sales tax which was not accepted by Hon'ble Supreme Court on the ground that accepting the commercial tax authority's plea would amount to extending the legal fiction beyond the purpose for which it was created. It is in this context that the Hon'ble Court observed that payment of Service tax and the VAT are mutually exclusive, as when Sales tax/VAT is charged on the value of goods used in an indivisible service contract involving use of goods in rendering of service by treating the goods supply as deemed sale under Article 366(29A) of the Constitution, Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the appellant, there are no willful suppression of facts or misstatement of facts as seen from the correspondences and various letters filed by the appellant. Therefore, the show- cause notice dated 2.3.2010 invoking suppression cannot be sustained. The Supreme Court in the case of Uniworth Textiles Ltd.Versus Commissioner of Central Excise, Raipur 2013 (288) E.L.T. 161 (S.C.) dated 22-1-2013 observed as follows: "25. Moreover, this Court, through a catena of decisions, has held that the proviso to Section 28 of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice, a requirement that the show cause notice in the present case fails to meet. In Aban Loyd Chiles Offshore Limited and Ors. (supra), this Court made the following observations : "21. This Court while interpreting Section 11-A of the Central Excise Act in Collector of Central Excise v. H.M.M. Ltd. (supra) has observed that in order to attract the proviso to Section 11-A(1) it must be shown that the excise duty escaped by reason of fraud, collusion or willful misstatement of suppression of fact with intent to e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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