Sak Soft Limited Vs Commissioner Of GST & Central Excise (CESTAT Chennai)
ld. Counsel for appellant has also raised an argument that the demand under MRSA cannot sustain for the period prior to 16.5.2008 when the transactions of the very same nature have been subjected to service tax under Information Technology Software Services after such services became taxable. It is to be stated that ITSS is not a category carved out of MRSA. The MRSA was introduced on 16.6.2005. When the department has not objected to the classification of the services under ITSS after 16.5.2008 and has accepted the appellant’s classification, they cannot demand service tax under a different category for transactions of the very same nature for the period prior to introduction of ITSS. In Indian National Shipowners Association (supra), the Hon’ble Supreme Court had categorically held that when a specific new service is introduced without carving out from the existing service category, such service can be liable to service tax only from the date of introduction of the new service. On this ground also, the demand under MRSA cannot sustain.
FULL TEXT OF THE CESTAT JUDGEMENT
The above matter has come up for hearing as per the remand order of the Hon’ble High Court in CMA No. 655/2020 dated 4.8.2020. This Tribunal had disposed the appeal vide Final Order No. 40401/2019 dated 27.2.2019. The Revenue filed an appeal against such order before the Hon’ble High Court and as per the judgment in the abovementioned CMA, the Hon’ble High Court has remanded the matter to rehear issue No. 4 on merits as well as on the ground of limitation. The relevant portion of the judgment of the Hon’ble High Court is noticed as under:-
” 7. Mere reference of the citations in the order and then holding that the extended limitation could not be invoked to the Revenue is a serious prejudice caused to the interest of the Revenue, in the absence of discussing the Order dt. 04.08.2020 in C. M.A. No.655 of 2020 relevant facts, and giving reasons, for arriving at a particular conclusion. We are restraining ourselves from expressing anything further on the tenor of the order passed by the learned Members of the Tribunal in the present case.
8. We hope and expect that the learned Members, and even other Members, who deal with the appeals from now onwards, in such Revenue matters, should understand the letter and spirit of these observations of the High Court.
9. We accordingly set aside the said order of the learned Tribunal on the said issue no.4, regarding taxability of manpower services and application of extended limitation in the present case and restore the appeal back to the learned Tribunal, with a request to hear the appeal de novo on the said issue and decide the same as expeditiously as We are not in a position to answer the questions raised by the Revenue in the present appeal at this stage, for the aforesaid reasons.
10. The appeal is accordingly disposed of, without any order as to costs.”
2. Issue No. 4 is in regard to the demand of service tax on Manpower Recruitment or Supply Agency Service (hereinafter referred to as MRSA services) for the period 16.6.2005 to 2007 – 08.
3. The appellant is engaged in providing information technology related solutions including maintenance of software etc. They are paying service tax under Information Technology Software Services after such services have become taxable in 2008. The department was of the view that for the period prior to 2008, as per the agreements entered by the appellant with various clients, the appellants have rendered MRSA services to these clients. This allegation has been defended by the appellant stating that the services are nothing but Information Technology Software Services for which they have been paying service tax after 2008 and that these activities will not fall under the definition of MRSA.
4. On behalf of the appellant, ld. Counsel Shri Raghavan Ramabhadran appeared and argued the matter. He submitted that the appellant is a global IT services and consultancy company providing IT solutions for business in Banking, Financial and Insurance Sectors. The appellant offers IT solutions by way of application development and maintenance, business intelligence and data warehousing, application integration, testing, conversion / migration / reengineering etc. The Hon’ble High Court has remanded the matter to reconsider Issue No. 4 where the demand raised under manpower recruitment and supply agency service for the period 16.6.2005 to 2007 – 08. It is submitted by him that the appellant has paid service tax for these services under Information Technology Software Services from the period 16.5.2008. This has been accepted by the department. He referred to para 9.7 of the reply to show cause notice to substantiate this argument. The department is now trying to bring the very same services under MRSA for the period prior to 16.5.2008. The department has not objected to the classification of the services under Information Technology Software Services for the period commencing from 16.5.2008. Therefore, no tax liability can be imposed under a different category for the activities in the very same nature for the period prior to the introduction of levy of service tax on Information Technology Software Services. He relied upon the decision of the Hon’ble Supreme Court in the case of Indian National Shipowners Association – 2011 (21) STR 3 (SC) and argued that when a specific new service is introduced without carving out any scope from the existing service category, such services can be liable to service tax only from the date of introduction of such new service. Similar view was taken in the case of Commissioner of Vs. IBM India Pvt. Ltd. – 2010 (18) STR J137 (SC). In this case, the Apex Court upheld the Tribunal’s finding that ERP management services were classifiable under Information Technology Software Services with effect from 16.5.2008 and therefore could not be taxed under Management Consultancy Services for the period prior to 16.5.2008. The case of the department that service tax is liable on the same activity under MRSA prior to 16.5.2008 will not survive because the same transaction is accepted by the department to be Information Technology Software Services for the period after 16.5.2008.
5. Moreover, the services are predominantly provided by the appellant to companies who are not in the field of IT or software development. This will go to show that the appellant was providing Information Technology Software Services to these clients and not MRSA service. The facts are similar to the facts in the case of Cognizant Tech Solutions decided by the Tribunal as reported in 2010 (18) STR 326 (Tri. Chennai). In Cognizant Tech Solutions, the Tribunal observed that though personnel had been recruited specifically to fit the standards specified by Pfizer, the responsibility of the assessee therein did not end with supplying the personnel, the assessee was responsible for the entire project and retained control over the deployed personnel. The Tribunal held that the transaction was classifiable under Information Technology Software Services by noting that the transaction was for providing data management services even though the budget was prepared ‘per seat cost’.
6. The Tribunal in the case of M/s. Future Focus Infotech Pvt. Ltd. Vide decision dated 3.3.20 10, had confirmed the demand of service tax on the assessee therein on a factual finding that the contracts were for supply of skilled personnel to IT companies to work on software projects and the contracts did not evidence provision of ITSS by the Later, in M/s. Future Focus Infotech Pvt. Ltd. – 2018 (18) GSTL 441 (Tri. Chennai), the Tribunal had occasion to consider the subsequent periodical demand imposed. The two views expressed in Cognizant Tech Solutions (2010) and M/s. Future Focus Infotech Pvt. Ltd. (2010) was analyzed by the Tribunal in the said decision. It was held that each decision is still good law and would operate against different factual aspects involved in each transaction.
7. From para 6.4 of M/s. Future Focus Infotech Pvt. Ltd. (supra 2018), the following position of law emerges as a guiding light to decide which of the two views would be applicable.
(a) If the responsibility of the development, maintenance of ITSS lie with the assessee, they were rendering IT service
(b) In contract, if the IT work is done by the assessee’s client with the help of manpower skill in IT work, then the transaction was one of manpower supply.
8. The ld. Counsel stressed that the appellant’s core competence is of IT services, software consultancy. The tone and tenor of all the agreements executed by the appellant with its client is focused on providing specialized software services. In fact, the transactions under dispute clearly stipulate that the agreement with the appellant was for IT related services only. It is admitted that the appellant has deputed its employees to client locations for carrying out specific task as required by the client. However, the appellant retains direct control over its employees who work on specific client projects at the client locations. From a fair perusal of the contract, it is beyond doubt that the characteristics of the transaction are software services and the personnel are only resources deputed for providing the said software services.
9. He pointed out that in the Show Cause Notice as well as Order in Original, the department has recorded the transactions under dispute as being various IT related services only. In the Order in Original, the adjudicating authority has discussed only three contracts before misconstruing the obligations emanating out of these contracts. The adjudicating authority has wrongly relied upon the decision of the Tribunal in M/s. Future Focus Infotech Pvt. Ltd. The decision in M/s. Future Focus Infotech Pvt. Ltd. and the entire line of decisions following M/s. Future Focus Infotech Pvt. Ltd. are distinguishable on facts from the appellant’s contracts. The workforce allocated to the customers’ premises by the appellant is only a means of rendering said software Therefore, the decision in Cognizant Tech Solutions (supra) would be wholly applicable with the instant case and the demand cannot sustain.
10. It is also argued by the ld. Counsel that the appellant is not a manpower supply agency. They are not engaged in supply of manpower in any manner. The objects of Memorandum of Association of the appellant would bring out that they are not engaged in manpower supply agency. He relied upon the decision in the case of Commissioner of Service Tax Vs. Arvind Mills – 2014 (35) STR 496 (Guj.) to argue that the Hon’ble High Court of Gujarat in the said case held that fundamentally tax liability under MRSA would be attracted only when the provider was generally engaged in providing such service. It is further argued by him that the essence or substance in the contract is material for determination of the nature of the transaction. He relied upon the decision in the case of Super Poly Fabriks Ltd. Vs. CCE, Punjab – 2008 (10) STR 454 (SC).
11. The ld. Counsel also argued on the ground of limitation. The demand of service tax on software services rendered by the appellant is alleged by the department to be taxable under MRSA for the period from 16.6.2005 to 31.3.2008. There is no factual finding of suppression or mal-intent on the part of the appellant by the department. Though in the Show Cause Notice at para 6 it is alleged that appellant suppressed material facts with intent to evade payment of service tax, there is no evidence put forward in this regard to show that the appellant has deliberately avoided paying service tax on MRSA. In fact, classification of services is an issue involving interpretation of law. The appellant has paid service tax under Information Technology Software Services after 16.5.2008 when Information Technology Software Services was introduced. This being the admitted fact, the department cannot demand service tax on the transactions of very same nature prior to 16.5.2008. Further, the appellant had provided all documents and periodical accounting records as and when called for by the department. He relied upon the case in Continental Foundations Jt. Venture Vs. Commissioner – 2007 (216) ELT 177 (SC) to argue that there must be positive act on the part of the assessee to justify invocation of extended period. The department having failed to establish such act of suppression with intent to evade payment of service tax, the extended period is not invocable in the present case.
12. This very same issue of MRSA came to be considered by the Tribunal on 3.3.2010 in two different matters in Future Focus Infotech and Cognizant Tech Solutions. After considering the factual matrices in each appeal and the applicable provisions, the Tribunal upheld the demand in Future Focus Infotech India Pvt. Ltd. (supra 2010) while the Tribunal set aside the demand in Cognizant Tech Solutions (supra 2010). Since there was a very narrow distinction between the facts in these cases, the same was discussed by the Tribunal in Coromandel Infotech India ltd. Vs. Commissioner – 2019 (1) TMI 323 – CESTAT Chennai. The Tribunal set aside the demand in Coromandel Infotech for the extended period of limitation on a finding that the issue was interpretational. In various cases, it has been held that when the issue involves interpretation of application of legal provisions and applicability of facts, the invocation of extended period cannot sustain. He further stated that the decision in Cognizant Tech Solutions (supra) has attained finality as the department has accepted the ratio therein. Once the dispute has been accepted by the Revenue, they are not permitted to agitate the same issue in another assessee’s case. To support this argument, he relied upon the decision of the Hon’ble Supreme Court in the case of Boving Fouress Ltd. Vs. CCE – 2006 (202) ELT 389 (SC). In the case of Calcutta Industrial Supply Corporation Vs. Commissioner – 2019 (31) GSTL 487 (Tri.) it was held that extended period of limitation is not invocable in the disputes involving classification of service. The ld. Counsel pleaded that the demand under MRSA may be set aside.
13. The ld. AR Ms. T. Usha Devi appeared for the department. She supported the findings in the impugned order. She relied upon the decision in Future Focus Infotech India Pvt. Ltd. (supra 2018) to argue that the agreements entered by the appellant would make the transaction as supply of manpower and therefore the demand under MRSA is legal and proper. After the matter was reserved for orders on 15.1.2021, the ld. AR furnished additional written submissions. In the said submission, it is noted that as per para 6.10 of the Show Cause Notice, various clients fall under manpower supply service. Out of the above clients, the agreement pertaining to ABN AMRO Bank, Citigroup Information Technology Operations and Solutions (CITOS), Punjab National Bank, Sak Consumer Retail Services Ltd. Bajaj Allianz, ING Vysya Bank Ltd. are not available. Therefore, conclusion cannot be arrived. However, in the case of Barclays Bank, Acsys Software India Pvt. Ltd. and Societe General Global Solution Centre Pvt. Ltd. the transactions perfectly fit into manpower supply. She has also referred to pages with regard to the appeal paper book regarding these clients. It is further stated by her in the cases of HDFC Bank, Scope International intellectual property rest with the receiver, location also at customer’s place, finite men are supplied, however, fee is charged as per annum basis, so without proper split up, conclusion cannot be arrived. On the whole, without all the agreements, conclusion cannot be arrived as to whether it is manpower supply or information technology service and also ingredients of suppression cannot be arrived. It is also requested by her that the appellant may be given sufficient time to submit the rest of documents and issue may be reheard again.
14. Heard both sides and perused records carefully.
15. Before we proceed, it would be helpful to notice the definition of Manpower Recruitment Supply Agency (MRSA) and services as it stood during the relevant period:
Section 65(68) of Finance Act, 1994
“Manpower recruitment or supply agency”means any [person] engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, [to any other person]’
Section 65(105)(k) of Finance Act, 1994
“To any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner
Explanation – for the removal of doubts, it is hereby declared that for the purposes of this sub-clause, recruitment or supply of manpower includes services in relation to pre-recruitment screening, verification of the credentials and antecedents of the candidate and authenticity of documents submitted by the candidate”
16. Further, Information Technology Software Services which was inserted by Finance Act, 2008 with effect from 16.5.2008 is defined under section 65(53a) as under:-
Section 65(53a) of Finance Act, 1994
“Information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment”
17. From the definition of manpower recruitment supply agency service noticed above, it can be seen that the activity should be recruitment or supply of manpower, temporarily or otherwise. The essence would be that the service provider who renders MRSA service would have no control or supervision on the work / job done by such persons supplied / recruited.
18. In the case of an assessee, who is engaged in services in the nature of development, maintenance and such software related activities, it is sometimes necessary to send their staff / qualified personnel to the location of the clients to carry out the services agreed upon. When the staff / skilled personnel is send by the assessee to the clients to carry out the software projects, in some cases, the control and supervision of such staff is with the client. In such cases, when the agreement is not for providing software projects but supply of qualified staff only such staff would be under the guidance and supervision of the client. The Tribunal in Future Focus Infotech India (P) Ltd. Vs. Commissioner of Service Tax, Chennai vide Final Order No. 246 & 247/2010 dated 3.3.2010 as reported in 2010 (18) STR 308 (Tri. Chennai), after analyzing the facts had held that when the staff / qualified personnel have to function under the overall supervision / control and management of the client, the services provided would be manpower supply service. On the very same day, the Tribunal in the case of Cognizant Tech Solutions (I) Pvt. Ltd. [Final Order No. 259/2010 dated 3.3.2010] had occasion to analyse a different set of facts. In Cognizant Tech Solutions, they were themselves responsible for the development, information technology software activities etc. and the client did not have any role of supervision, control or management over the staff / qualified personnel supplied. The agreement was for fulfilling development, information technology software activities to be done by Cognizant Tech Solutions. From the facts in Cognizant Tech Solutions, the agreement was for carrying out IT related services by Cognizant Tech Solutions though staff / qualified personnel were to carry out such activities in the premises of the client. The Tribunal held that activity will not fall under manpower supply services.
19. Later, in another case, M/s. Future Focus Infotech Pvt. Ltd., for subsequent periodical demand, the Tribunal vide Final Order No. 41108/2018 dated 27.2.2018 had distinguished the decision rendered in Cognizant Tech Solutions. An argument was put forward during the hearing of that appeal by the counsel appearing for the appellant that there is a conflict in the decisions rendered by the Tribunal in their own case dated 3.3.2010 and the decision rendered in Cognizant Tech Solutions on the same date. A request was made to refer the issue to larger Bench. (Para 3(i)of the decision in Future Infotech Final Order dated 27.2.2018). The Bench looked into the facts of both these decisions and came to the conclusion that although on the first blush, the facts may appear similar, there is discernable differences. The Tribunal observed that M/s. Future Focus Infotech was providing manpower to their clients TCS, Infosys etc. and that the software or IT development was done only TCS, Infosys etc. It was concluded in Final Order dated 27.2.2018 that the activity rendered by the assessee would fall under MRSA and that the decision in Cognizant Tech Solutions will not apply.
20. The Tribunal in the appeal before us, in its earlier order dated 2.2019 while disposing the appeal had referred to both these decisions and also to the decision in the case of Coromandel Infotech India Ltd. Reported in 2019 (1) TMI 323 – CESTAT Chennai. In para 6 to 8 of the order in Coromandel Infotech India Ltd., the Tribunal has discussed in detail the discernible differences in the facts under dispute in Future Focus Infotech India Pvt. Ltd. and Cognizant Tech Solutions. To be clear we would like to say that when the assessee is providing information technology software services to the clients, even though they supply staff / qualified personnel to the premises of their clients, the activity would not fall under MRSA. To the contrary, if the assessee is providing only staff / qualified personnel to the premises of the client and has no role in providing information technology software services, then the activity would squarely fall under MRSA.
21. With the above background, we may proceed to analyse Issue No. 4 as per the facts of this case. In para 6.10, the scope of work of various clients of the appellant has been summarized by the department. For better appreciation and analysis of facts, it would be worthwhile to reproduce the relevant part in para 6.10 of the Show Cause Notice with regard to the agreements entered by the appellant.
| S. No. | Client Details | Scope of work / activity as per the Agreement / Purchase Order / Work Order / Email confirmation |
| (i) | ABN AMRO Bank | Software application development, application support and related services.Oracle RDBMS related technical performance review and improvement.1. Review current tables, tablespaces, rollback segments and sizing them properly.2. Apply Oracle partitioning, indexing (bit map, function based, COB), materialized views concepts wherever appropriate to have higher performance3. Review and correct all Oracle init.ora parameter files4. Review critical time taking queries and rewrite without affecting functionality to get performance.5. Build batch process to collect stat to have COB of work better Paid content
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