Basf India Ltd Vs C.C.E. & S.T (CESTAT Ahmedabad)
CESTAT Ahmedabad held that as ‘information technology software service’ was implemented w.e.f. 16.05.2008 the same cannot be held taxable prior to that date. Hence, demand for the period prior to 16.05.2008 is not maintainable.
Facts- The audit was conducted by the officers of the central excise wherein it was pointed out that appellant has received ERP related services from two service provider situated outside India and accordingly, appellant was liable to pay service tax u/s. 66A. As per the audit officers the appellant had paid total amount of Rs. 2,21,73,200/- to M/s. CIBA Switzerland and BASF, South East Asia Singapore during the period from June 2006 to March, 2008 towards ERP system related services which should have been taxed under the category of Management or Business Consultant Service” and further paid amount of Rs. 2,90,65,606/- during the period from June 2006 to April, 2010 towards ERP system related service should be taxable under the category of “Information Technology Software Service”.
Conclusion- Held that the introduction of the new service itself shows that since the same was not taxable under the existing entry prior to its introduction the same was not taxable prior to its introduction, for this reason also the revenue itself admitted that very same service of ERP implementation is classifiable under “Information Technology Software Service” w.e.f 16.05.2008 and the same was not taxable prior to this date under management or business consultant service, for this reason also the demand for the period prior to 16.05.2008 is not maintainable.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant in order to redesign and replace its existing system with a single ERP system had entered into an agreement dated 07.011.2005 with M/s. CIBA Switzerland whereby it was agreed to share the costs incurred towards development of enterprise resource planning (ERP) software and reporting and replace existing system used by the appellant. As per the agreement the appellant was to receive the services in relation to software maintenance, hardware maintenance and IT operations implemented in the appellant’s company. This agreement was also a cost sharing agreement. However, the ERP system was installed in August 2008 in appellant’s company. Since the expenditure incurred after development of ERP system qualifies as capital expenditure the appellant accounted the same as capital expenditure and shown the same expenditure under capital heads in their financial reports of the year 2006-2007, 2007 -2008 and 2008 -2009. The audit was conducted by the officers of the central excise wherein it was pointed out that appellant has received ERP related services from two service provider situated outside India and accordingly, appellant was liable to pay service tax under Section 66A. As per the audit officers the appellant had paid total amount of Rs. 2,21,73,200/- to M/s. CIBA Switzerland and BASF, South East Asia Singapore during the period from June 2006 to March, 2008 towards ERP system related services which should have been taxed under the category of Management or Business Consultant Service” and further paid amount of Rs. 2,90,65,606/- during the period from June 2006 to April, 2010 towards ERP system related service should be taxable under the category of “Information Technology Software Service”. The appellant paid service tax of 23,81,235/- under the category of “Information Technology Software Service” along with interest of Rs 1,44,179/- on 22.10.2010 on total value of Rs 2,47,35,691/- which was paid by the appellant towards ERP related services during the period 2009- 2010. The appellant further paid service tax of 10,13,121/- along with interest of Rs. 3,00,600/- after audit and during investigation carried out by the department. The appellant was issued with show cause notice dated 04.10.2011 demanding amount of Rs. 58,54,029/- under reverse charge mechanism in terms of Section 66 A read with Rule 2 (1) (d) (iv) of Service Tax Rules, 1994 along with interest and penalty under Section 76,78,77(1) and 77 (2) of the Finance Act for the period 2006-07 to 2009-10. The department alleged that the ERP related services received by the appellant were taxable under Management Consultant Services for the period up to 15.05.2008and thereafter from 16.05.2008 under “Information Technology Software Service” on introduction of said service.
The show cause notice invoked extended period of limitation under section 73 of the act on the allegation that the appellant suppressed information from the department. Further the show cause notice also sought to charge interest under section 75 of the act and impose penalties under sections 76, 77 and 78 of the Act. The learned Commissioners of Service tax Surat- II confirmed the demand of Rs. 58,54,029/- with interest and penalty under section 76, 78,77 (1) and 77 (2) of the finance act, 1994 against the appellant the penalty under section 76 was imposed for the period till 10.05.2008. The ld. Commissioner confirmed and appropriated the amount of service tax of Rs. 35,96,982/- along with interest Rs. 5,57,723/- already paid by the appellant against the recovery of service tax amounting to RS. 58,45,029/- and interest. Being aggrieved by the aforesaid impugned order the appellant have preferred the present appeal.
2. Shri Jigar Shah, Learned Counsel along with Shri Amber Kumrawat, Advocate appearing for the appellant at the outset submits that the issue regarding taxability of ERP implementation related service under the category of “management or business consultant service” for the period prior to 16.05..2008 is no more res- integra in view of the decision of CESTAT Bangalore in the case of IBM India Pvt. Ltd. – 2009 (4) TMI 314 which in turn has been affirmed by the Hon’ble Supreme Court as well. He further submits that the demand of service tax in the present case has been under the category of “ Management and Business Consultant Service” for the period up to 16.05.2008 and under the category of “Information Technology Software Service” for the period post 16.05.2008. It is his submission that the appellant have discharged the applicable service tax under the category of “Information Technology Software Service” in respect of all the payment made by it post 16.05.2008 along with applicable interest for the delay in payment of tax.
2.1 He further submits that as regard the payment made by the appellant prior to 16.05.2008 since no liability for payment of service tax could arise under the category of “Information Technology Software Service” as the same was introduced with effect from 16.05.2008 the ld. Commissioner has erroneously confirmed the demand for the service tax under the category of management and business consultant service.
2.2 He, without prejudice, to his above submission further submits that arrangement in the present case is for sharing of costs and not for provision of service and hence, no liability of service tax could arise. He placed reliance on the following judgments:-
