Religare Technova Global Solutions Ltd. Vs Commissioner of Service Tax (CESTAT Bangalore)
Conclusion: Since the activities undertaken by assessee were covered under the Information Technology Services as taxable under Section 65(105)(zzzze) with effect from May 16, 2008 and prior to 16-5-2008, even the services rendered by assessee was excluded from the scope of consulting engineer’s service and also the judicial pronouncements made it clear that they would not be covered under the management consultancy services.
Held: Assessee-company was developer of an internet based trading software ‘Trade Anywhere’ and licensing the same to its customers who were primarily share broking houses / financial institutions / banks and media portals. It for providing such software license, had entered into Software License Agreements with various share broking houses, etc. For licensing of software, the company was collecting charges termed as “license fee” and on this value it was collecting and discharging CST @ 4% for interstate sales and excise duty. Department entertained the view that assessee was liable to pay service tax under Management or Business Consultant Service as provided in Finance Act, 1994 but was not paying the same and had also not informed the department about non-payment of service tax on Management or Business Consultant Service. It was held that in the case of IBM India Pvt. Ltd. that ERP implementation service was definitely for use in furtherance of business and commerce and the service under dispute was for the implementation. So, implementation of the ERP services was specifically covered under the information technology service, which was effective only from 16-5-2008. Under these circumstances, it could not be liable to Service Tax for a period prior to that. In the present case, the entire period was prior to 16-5-2008. The appellants had clearly shown that prior to 16-5-2008, even the services rendered by the appellant were excluded from the scope of consulting engineer’s service and also the judicial pronouncements made it clear that they would not be covered under the management consultancy services.
FULL TEXT OF THE CESTAT JUDGEMENT
The present appeal is directed against the Order-in-Original No. 71/2012 dated 30.5.2012 passed by the Commissioner of Service Tax, Bangalore whereby the Commissioner has confirmed the following demands.
(i) Confirmed an amount of Rs.3,54,54,363/- payable as service tax payable for the services provided by the appellants under Section 73(2) read with proviso to Section 73(1) of the Finance Act, 1994.
(ii) Ordered payment of interest at the rate applicable under Section 75 of the Finance Act, 1994.
(iii) Imposed penalty equivalent to the tax amount demanded under Section 78 of the Finance Act, 1994.
(iv) Imposed penalties under Section 76 @ Rs.100/- per day up to 17.4.2006 and @ Rs.200/- per day or @ 2% of service tax per month from 18.4.2006 up to 10.5.2008; and
(v) Imposed penalty of Rs.5,000/- under Section 77 of the Finance Act, 1994.
2. Briefly the facts of the present case are that the appellants are developer of an internet based trading software „Trade Anywhere‟ and licensing the same to its customers who are primarily share broking houses / financial institutions / banks and media portals. The appellant for providing such software license, has entered into Software License Agreements with various share broking houses, etc. For licensing of software, appellants are collecting charges termed as „license fee‟ and on this value they are collecting and discharging CST @ 4% for interstate sales and excise duty. The department entertained the view that the appellants are liable to pay service tax under Management or Business Consultant Service as provided in Finance Act, 1994 but are not paying the same and has also not informed the department about non-payment of service tax on Management or Business Consultant Service. Department, thereafter, on 8.4.2011 issued a show-cause notice to the appellant on the following allegations.
(i) The appellant had carried out various activities like modification and customization of software, install the software for use on the equipment for trading, providing support through remote access using the internet as a medium, sending engineers to the site of customers, provide additional training required by the customer from time to time.
(ii) The software so implemented is used by the customers for the purpose of automated trading systems that protects the interest of security market participants from the risks they are exposed to on one hand and keeping their operational costs low on the other. The above activities carried out by the assessee covers under Enterprise Resource Planning Software Applications and the same is rightly classifiable under the category of Management or Business Consultant Services.
(iii) That during the period 1.3.2006 to 15.5.2008, the appellant has received an amount of Rs.28,84,88,133/- towards the above service and the service tax liability on the above works out to Rs.3,54,54,363/-.
(iv) That the fact of non-payment of service tax would not have come to the notice of the department but for audit‟s observation. Further, the appellant have not intimated to the department the above facts in any manner at any point of time. The appellant have not sought any clarification from the department thereby suppressing the facts with an intention to evade payment of service tax and hence, extended period prescribed under Section 73(1) of the Act appears to be invokable for recovery of service tax not paid / evaded by the appellant.
(v) Further, in view of the above contraventions, the appellant appears to have rendered themselves liable for penal action under the provisions of Section 76, Section 77 and Section 78 of the Act, apart from payment of interest under the provisions of Section 75 of the Act.
3. Appellant filed detailed reply to the show-cause notice praying that proceedings be dropped as the appellants are not liable to pay service tax under the category of Management or Business Consultant Service. After following the due process, the learned Commissioner rejected the contentions of the appellant and confirmed the demand in the impugned order dated 30.5.2012. Hence, the present appeal.
4. Heard both sides and perused the records.
5. The learned Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts involved in the case and without considering the precedent decisions of this Tribunal and the higher courts. He further submitted that as regard „Trade Anywhere’ software, they are not undertaking any consultancy work. The skill required and the service provided are in the field of engineering rather than in the field of trading or finance. The appellant’s software and the related services are to be treated as a product in the field of engineer notwithstanding any inputs that might have been taken from other domain groups. He further submitted that the respondent has failed to establish that the appellant’s customers were receiving any advice / consultation from the appellants in the areas of management. In fact, according to the learned counsel, the department has not verified from any customers of the appellant as to what kind of advice if any are being received by them from the appellant.
6. The learned counsel further submitted that Information Technology Software Service was specifically made taxable under Information Technology Software Service only from 16.5.2008 and the disputed period in this case is prior to 16.5.2008 and therefore, no service tax could be demanded during the period prior to 16.5.2008. In support of these submissions, the learned counsel has relied upon the following decisions:
