Black Box Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
Software Activation charges are not covered under ‘Business Auxiliary Services’
The CESTAT, Ahmedabad in Black Box Limited v. Commissioner of Central Excise & ST, Ahmedabad-iii [Service Tax Appeal No. 572 of 2012-DB dated January 4, 2023] has held that amount collected by the assessee as “activation charges” of equipment/ software features are covered under the activity of sales of goods and not covered under the provisions of “Service” under the Finance Act, 1994 (“the Finance Act”).
Facts:
Black Box Limited (“the Appellant”) was dealing in Electronic and Telecom equipment, and software was embedded in such equipment systems. On scrutiny of the Balance Sheet of the Appellant, it was revealed that the Appellant has shown a certain amount as “Software Activation” income and had collected these charges from their customers in connection with after-sales of goods. The Appellant was issued three Show Cause Notices (“SCNs”) as to why the activity of selling software should not be treated as taxable services under the category of “Business Auxiliary Services” under Section 65 of the Finance Act and the Service tax should not be demanded under Section 73(1) of the Finance Act along with interest.
Thereafter, the Commissioner of Central Excise (“the Respondent”) passed an Order-in-Original dated March 31, 2008 (“the Order-in-Original”) wherein the Service tax demand was confirmed, holding that the Appellant is not only selling the goods of the foreign vendor but are also providing after-sales services. Thus, said activity is covered under Business Auxiliary Service. The Appellant contended that the purchase of goods from the Appellant is not a service and buyer of goods cannot be treated as a recipient of service, and the Appellant is a seller of goods liable to Sales Tax/VAT, which is paid undisputedly. The Appellant further submitted that goods subjected to Sales Tax cannot be treated as service rendered nor can be equated with Service Tax liability.
Therefore, the Appellant filed an appeal before the CESTAT and vide order dated September 29, 2010, the matter was remanded back to the Respondent and vide order dated September 20, 2020 (“the Impugned Order”), the Respondent confirmed the Service tax demands along with interest and penalty.
Being aggrieved, this appeal has been filed.
Issue:
Whether the Appellant is liable to pay Service tax on “Software Activation Charges” under the taxable services of “Business Auxiliary Services”?
Held:
The CESTAT, Ahmedabad in Service Tax Appeal No. 572 of 2012-DB, held as under:
