By TIOL News Service

MUMBAI, SEPT 10, 2014: THE CST-II, Mumbai confirmed a service tax demand of Rs.30,79,501/- along with interest thereon against the appellant by classifying the service received by them under the category of ‘Management, Maintenance or Repair Service’ for the period 18/04/2006 to 15/05/2008. Penalties were also imposed in adequate measure.

Before the CESTAT, the appellant submitted that they had entered into a software usage agreement with M/s. Lear Corporation of USA, as per which the appellant was allowed usage of specified software mentioned in the agreement. For the services rendered, the appellant was liable to pay Lear USA, proportionate amount of annual maintenance charges which Lear USA pays to various vendors of this software. It is further submitted that the appellant has been discharging service tax liability on the services received w.e.f. 16/05/2008 under ‘Information Technology Services’ and there is no dispute with regard to the classification adopted by the appellant from the said date. However, for the period prior to 16/05/2008, the Revenue seeks to classify the services under ‘Management, Maintenance or Repair Service’ only on the ground that the consideration for the services received have been passed on to the service provider on a proportionate amount of annual maintenance charges which the service provider pays to various vendors of the software.  It is also submitted that in terms of the agreement, apart from receiving the software through the internet, the appellant also receives upgrades and amendment to the software but since these amendments and upgrades are received electronically, the software received cannot be considered as goods and since management, maintenance or repair service relates to those activities in respect of goods, the activity will not fall within the purview of ‘management, maintenance or repair service’.  Adverting to the amendment made to Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, the appellant further submits that tax liability, if any, under ‘Management, maintenance or repair service’ would be w.e.f 01/03/2008 and that would be negligible.

The AR sided with the findings of the adjudicating authority.

The Bench after considering the submissions observed -

++ It is not for maintenance or repair that the appellant is making payments but for the usage of the software. Only the mode of consideration for payment for the services rendered has been linked to the annual maintenance charges which Lear USA pays to various vendors. This does not mean that the payment is for maintenance of computer software.

++ We are therefore, prima facie of the view that the services received by the appellant do not fall within the category of ‘Management, Maintenance or Repair service’ and would fall more appropriately under ‘Information Technology Service’ which was brought under the tax net w.e.f 16/05/2008. Even if hypothetically it is assumed that the services fall under ‘management, maintenance or repair service’ prior to 01/03/2008 there was no provision in law enabling Revenue to tax this activity under ‘management, maintenance or repair service’ when the services were rendered electronically or through a computer network. On this ground also the impugned demands do not appear to be sustainable in law.

Taking note of the settled legal position that measure of levy does not determine the nature of levy as affirmed by the apex Court in the case of Bombay Tyre International - 2002-TIOL-33-SC-CX, the CESTAT held that the appellant had made out a strong prima facie case and accordingly granted unconditional waiver from pre deposit of the adjudged dues and stayed recovery.

(See 2014-TIOL-1715-CESTAT-MUM)