SAP India Pvt. Ltd., the Appellants, entered into end-user license agreements with clients for maintenance of information technology software already installed in the computer systems and made operational. Show cause notice (SCN) was issued alleging that the appellants had rendered ‘maintenance or repair services’ taxable under Section 65(105)(zzg) read with Section 65(64) of the Finance Act, 1994 for the period July’04 to January’06. The demand was confirmed by the Commissioner in the Order-in-Original and hence the present appeal was filed by the appellants to the Customs, Excise and Service Tax Appellate Tribunal (‘CESTAT’).
Contentions of the Appellants
The Appellants put forth the following contentions:
• The definition of ‘Business Auxiliary Services’ introduced in 01.07.2003 specifically excluded maintenance of information technology software and hence, it should ipso facto remain outside the purview of service tax.
• Maintenance or repair of software became taxable only w.e.f. 16.05.2008 with the introduction of ‘Information Technology Software Services’
• Reliance was placed on the decision of IBM India Pvt. Ltd. vs. CST, Bangalore wherein it was held that ERP advice and implementation services were not subject to service tax under the head ‘Management Consultant’s services’ but under ‘Information Technology Software Services’ introduced w.e.f. 16.05.2008.
Contentions of the Respondents
The contentions of the respondents were as follows:
• The services provided for the maintenance or repair of software is taxable under the category of ‘Maintenance or repair services’.
• Anything done for the maintenance of computer software is what the law maker intended to bring within the ambit of ‘maintenance or repair services’ in relation to computer software.
Observations of the CESTAT
The following observations were made by the CESTAT:
• The services provided by the appellants were to upgrade the software or enhance its efficiency so as to meet the requirements of the customer.
• The subject services are in the nature of ‘adaptive maintenance’ and ‘perfective maintenance’ as opposed to ‘corrective maintenance’ or ‘preventive maintenance.’
• ‘Maintenance’ in the context of software is an expression of wider connotation unlike maintenance of tangible goods (for instance, maintenance of vehicle), maintenance of a factual situation (for instance, maintenance of status quo ordered by a court) etc.
• Maintenance or repairs of goods will not normally result in upgradation of its value or functional capacity or efficacy to higher levels than what originally existed.
• Unlike goods, the maintenance of software can improve its applicability to new functional areas to benefit the customer thereby enhancing its functional capacity/efficacy and value. Therefore, ‘maintenance or repair’ when used in connection with computer software, has a wider import than when used in connection with tangible goods.
• Adaption, upgradation, enhancement, implementation, etc. of information technology software are expressly covered by the definition of ‘information technology software’ service and that these very operations have also been specified as different categories on software maintenance in the literature relied upon.
• There is almost total convergence between the technical literature on software and the definition of information technology software service given under Section 65(105)(zzzze) of the Finance Act, 1994.
• It is a settled law that a new taxable service covered by specific entry under Section 65 of the Finance Act, 1994 will not attract service tax under any pre-existing entry.
Conclusion :-The CESTAT held that the services rendered by the appellants are not liable to service tax under the head ‘maintenance or repair service’ and in fact, were in the nature of information technology software services which were made taxable w.e.f. 16.05.2008.
Source :- Hon’ble CESTAT in the case of M/s SAP India Pvt. Ltd. Vs CCE, Bangalore vide Order No. 1443/2010