Mindtree Ltd Vs Commissioner of Service Tax (CESTAT Bangalore)
It was not intention of the Government to tax software services as information technology services including ‘Software Maintenance Services’ were excluded from ‘Business Auxiliary Services’; the explanation added in the definition of ‘Goods’ to include computer services if can only be prospective from 1.6.2007 and the Circular No.81 dated 7.10.2005 cannot override the statutory provisions and moreover, the same was struck down by Madras High Court in the case of Kasturi and Sons Ltd.: 2011 (22) STR 129 (Mad.); the same was followed by jurisdictional High Court of Karnataka in the case of M/s. IBM India Pvt. Ltd.: 2021 (47) GSTL 7 (Kar.); it was held that software maintenance is exigible to service tax only from 1.6.2007. He also submits that Revenue has erred in considering the total domestic revenue during the period July 2004 to November 2005, whereas in terms of the show-cause notice only the amount received for software maintenance should have been considered.
CESTAT held that the appellants are not required to service tax on software maintenance services during the period July 9, 2004 to November 30, 2005.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The appellants M/s. Mind Tree are engaged in provision of IT related services and have obtained registration for providing ‘Management, Maintenance or Repair Service and Information Technology Software Service’. During the course of audit, the department observed that the appellants received an amount of Rs.6320.52 lakhs towards the services rendered under maintenance and repair of software service for the period 9.7.2004 to 30.11.2005; such service were liable to service tax from 1.7.2003; however, maintenance of computer software was exempted vide Notification No. 20/2003 from 21.8.2003 to 8.7.2004; CBEC vide Circular dated 17.12.2003 clarified that computer software was not leviable to be taxed under the service; when Hon’ble Supreme Court held in the case of Tata Consultancy Services that computer software was goods, the department vide Circular No.81 dated 7.10.2005 and Circular No.256 dated 7.3.2006 clarified that maintenance, repair and servicing of software were liable to service tax from 9.7.2004; the appellants who are engaged in providing maintenance and repair of software and in export of services started paying service tax from 1.12.2005 only. Therefore, department opined that the appellants are liable to pay service tax of Rs.644.69 lakhs with effect from 9.7.2004. During the course of audit, it was also observed that prior to 1.7.2008, a service provider of both exempted and taxable services was allowed the option either to maintain separate accounts of inputs services received under Rule 6(3)(c) of CENVAT Credit Rules, and in case such separate accounts are not maintained, they shall be entitled to utilise the CENVAT credit only to the extent of 20% of the service tax payable; the appellants though availed and utilised credit up to 20% of the tax payable, failed to pay the balance amount of 80% of total tax i.e. Rs.135.16 lakhs in cash for the period June 2007 to March 2008. A show-cause notice dated 19.4.2010 was issued and was confirmed by the Order-in-Original dated 6.5.2011. Learned Commissioner confirmed the both the demands along with penalty and interest. Hence, this appeal.
2. Learned counsel for the appellant submits that it was not intention of the Government to tax software services as information technology services including ‘Software Maintenance Services’ were excluded from ‘Business Auxiliary Services’; the explanation added in the definition of ‘Goods’ to include computer services if can only be prospective from 1.6.2007 and the Circular No.81 dated 7.10.2005 cannot override the statutory provisions and moreover, the same was struck down by Madras High Court in the case of Kasturi and Sons Ltd.: 2011 (22) STR 129 (Mad.); the same was followed by jurisdictional High Court of Karnataka in the case of M/s. IBM India Pvt. Ltd.: 2021 (47) GSTL 7 (Kar.); it was held that software maintenance is exigible to service tax only from 1.6.2007. He also submits that Revenue has erred in considering the total domestic revenue during the period July 2004 to November 2005, whereas in terms of the show-cause notice only the amount received for software maintenance should have been considered.
2.1 Learned counsel submits that as regards the second issue of availment of CENVAT credit that the appellant has limited the utilisation of credit to 20% only as per Rule 6(3) of CENVAT Credit Rules and the only dispute is regarding payment of balance 80% in cash; the appellants have utilised the balance of 80% of the CENVAT credit after 1.4.2008 and paid the duty; it was held by the apex court in Eicher Motors : 1999 (106) ELT 3 (SC) that there is no difference between payment by cash or credit. Further, he submits that CBEC vide Circular F.No.137/72/2008-CX4 dated 21.11.2008 clarified that:
“As no lapsing provision was incorporated and that the existing Rule 6(3) of the Cenvat Credit Rules does not explicitly bar the utilisation of the accumulated credit, the department should not deny the utilisation of such accumulated Cenvat Credit by the taxpayer after 1.4.2008. Further, it must be kept in mind that taking of credit and its utilisation is a substantive right of a taxpayer under value added taxation scheme. Therefore, in the absence of a clear legal prohibition, this right cannot be denied.”
2.2 He relies upon the decisions rendered in the case Idea Cellular Ltd. vs. CCE, Thane: 2019 (6) TMI 903-CESTAT-MUMBAI and DHL Logistics Pvt. Ltd. vs. CCE, Thane-II: 2015 (38) STR 621 (Tri.-Mum.).
2.3 Learned counsel for the appellant submits also that the demand is time barred as there was no wilful suppression or misstatement of fact with an intent to evade payment of duty; the appellant was under bona fide belief that maintenance of software services was not liable to service tax and therefore, did not indicate the same in the returns; moreover, the issue is revenue neutral and mere non-payment of service tax cannot be equate to duty evasion. He relies upon:
