By TIOL News Service

MUMBAI, MAY 25, 2015: A ST demand of Rs.1,08,89,976/- under the category 'maintenance or repair' of computer software service for the period 9.7.2004 to 6.10.2005 is confirmed against the appellant by the CST, Mumbai. However, the adjudicating authority was generous in not imposing any penalty under sections 76, 77 and 78 of the FA, 1994.

No idea as to whether the Revenue was unhappy with the order of the CST, Mumbai. Nonetheless, the appellant is aggrieved &, therefore, before the CESTAT.

The appellant submitted that in the year 2003, the definition of Business Auxiliary Services specifically excluded maintenance of software in the explanation to the definition. CBE&C issued a Circular on 17.12.2003 clarifying that tax on 'maintenance or repair' of software is not leviable because it neither falls under the definition of "goods" nor under the definition of Business Auxiliary Service. However, pursuant to the apex court judgment in November, 2004 in case of M/s Tata Consultancy Services, another Circular was issued by the Board on 17.10.2005, this time clarifying that since software is 'goods', therefore, Service Tax is payable on the maintenance of software under the service categorized as 'Maintenance or Repair Service'. Further in 2006, the 'Business Auxiliary Service' definition was amended to the effect that maintenance of computer software shall not be treated as information technology service under business auxiliary service. The other development which took place was the amendment to the 'Maintenance or Repair' service on 1.6.2007 by insertion of an explanation clarifying that the maintenance of goods would also include the maintenance of computer software. The appellant also relied on the judgement of the Madras High Court in the case of Kasturi & Sons Ltd. - 2011-TIOL-240-HC-MAD-ST on the issue in which the High Court held that Service Tax will be leviable on maintenance and repair of computer software only from 1.6.2007 when the Explanation was added to the definition of 'Management Maintenance and Repair service'.

The A.R. reiterated the findings of the original authority and submitted that since Notification No. 20/03 dated 21.8.2003 which exempted the taxable service provided in relation to maintenance or repair of computer software, computer peripherals was rescinded on 9.7.2004, therefore, Service Tax became payable from the said date. Moreover, since the TCS judgment held that the term 'goods' includes 'software', therefore, Service Tax is payable under the un-amended definition of maintenance or repair service.

The Bench extracted the decision of the Madras High Court cited by the appellant and observed -

++ the Hon'ble High Court observed that the apex Court had no occasion to consider the implication of the Finance Act, 1994 in respect of the terms Information Technology and Maintenance of Software and the decision rendered in TCS case cannot be cited for a clarification in respect of the Finance Act, which is a parliamentary enactment. Therefore, as a matter of judicial decorum, we are bound by the judgment of Hon'ble High Court and we hold that the Service Tax is not payable by the appellant for the period 9.7.2004 to 6.11.2005 under the category of 'Maintenance or Repair' service.

++ Although we have given our decision on merits, we would like to observe that, whereas the Board clarified vide its Circular on 17.10.2005 that software is 'goods', the show-cause notice in the present case was issued only on 2.1.2007 i.e. beyond the normal period of one year. In view of frequent changes in Circulars and legal provisions, appellant cannot be faulted for not paying Service Tax. The Commissioner also, in his order, did not impose the mandatory penalty under Section 78 which involves invocation of the extended period. Therefore, we find that the demand is also hit by limitation.

The order was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-930-CESTAT-MUM)