ST - Rule 5 - Computer software recorded on media are 'goods' as held in TCS case - appellant provided services of maintenance or repair and accordingly entitled to refund, services being admittedly exported: CESTAT by Majority
By TIOL News Service
MUMBAI, OCT 26, 2015: THE appellant is a 100% EOU-STP unit engaged in exporting services, namely, Software Consultancy, Development of software, Maintenance or Repair of Software (MRS) and Management Consultant in relation to ERP software implementation service. Due to export of such services, the CENVAT Credit of Service Tax paid on input services gets accumulated.
The appellants filed two refund claims for refund of input service tax credit under Rule 5 of the CCR for the period July, 2005 to Sept. 2005 and for the period October, 2005 to December, 2005. Later, theyreduced the amount of refund claim to Rs. 2,47,27,422/- and Rs. 32,34,635/- respectively as they realized that the refund of CENVAT Credit attributable to inputs used in the non-taxable output services namely, software development and software consultancy is not admissible.
The adjudicating authority rejected the refund claims on the ground that all the output services are exempted from Service Tax. He came to this conclusion by holding that the services provided by the appellant are classifiable under Business Auxiliary Services and Consulting Engineers Service & both these services as defined in Sections 65(19) and 65(105)(g) respectively of the FA, 1994 categorically excluded 'software development' and 'Computer software engineering' from their coverage during the period in dispute. Hence, being non-taxable, CENVAT Credit is not available on the input services as per Rule 3 of CCR, 2004.
The Commissioner (Appeals) agreed with the order of the adjudicating authority.
When the matter was heard by the Division Bench of the CESTAT, there was a difference of opinion. And the following points came to be referred to the third Member for arriving at the Majority decision.
(i) Whether under the facts and circumstances, software will be treated as 'goods' w.e.f. 9.7.2004 in view of clarification vide Ministry of Finance, Department of Revenue's letter F.No. 256/1/2006-CX.4 dated 7.3.2006 read with Circular No. 81/2/2005-Service Tax, which provides that service tax is applicable on 'maintenance or repair of software service' under Section 65(105)(zzg) and also in view of ruling of the Hon'ble Supreme Court in the case of TCS (supra), wherein it was held that software is goods, the appellant have provided taxable services under Section 65(105) (zzg) read with Section 65(64) i.e. 'management, maintenance or repair', being services (i) maintenance of software, (ii) testing services, (iii) re-engineering services under Section 65(105)(r), (iv) consultation and management in respect of ERP software implementation, and accordingly entitled to refund, as claimed, the services being admittedly exported.
And
As the appellant have rendered taxable services under Section 65(105)(zzg), the appellant have rightly availed CENVAT Credit under Rule 5 of Cenvat Credit Rules, 2004 as held by Member (Judicial).
Or
1) Whether refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules is available when Rule 3 permitted credit on input services only to provider of taxable services.
2) Whether output services provided by the appellant are covered under the taxable service of “Maintenance or Repair” when the activity involved development and designing also of the software.
3) When the Commissioner (Appeals) did not examine all the contracts in order to decide whether the activity is of 'maintenance or repair' only, should not the case be remanded back to him to enable him to examine all the contracts before arriving at a decision on the issue at 2 above.
This order came be passed on 05.06.2015 after the hearing was held on 12.11.2014. We reported this order as 2015-TIOL-1185-CESTAT-MUM.
The Third Member (T) on reference has passed an order recently.
This is what he held -
+ I find that there is no dispute whatsoever that the computer software recorded on a media are goods as held by the Hon'ble Supreme Court in the case of Tata Consultancy Services - 2004-TIOL-87-SC-CT-LB.
+ In order to claim the rebate/refund, to my mind, it is necessary that the appellant provides copy of invoices issued during the period of refund claim i.e. July 2005 to December 2005 and the corresponding agreement between the appellant and the service receiver and along with category of service under which the appellant is claiming the service provided.
+ Since invoice wise/agreement wise facts are not clear, I entirely agree with Member (Technical) on point No. 3 that the Commissioner (Appeals) did not examine all the contracts in order to decide whether the activity is of “maintenance or repair” only and therefore the case should be remanded back to him to enable him to examine all the contracts before arriving at a decision that whether or not the appellant was providing taxable service of maintenance or repair or was providing services relating to development and designing also of the software. Commissioner (Appeals) has to quantify separately the amount involved relating to maintenance and repair service as also other service.
+ Further, it is absolutely necessary to examine whether the appellant is eligible for availing the credit of input services under Rule 3 before granting of refund of cenvat credit under Rule 5.
+ I agree with Member (Technical) on all the three points. I would also like to mention that on the fact that the appellant would be eligible for refund of input service credit relating to management, maintenance and repair service relating to computer software as held by Member (Judicial), there is no disagreement by Member (Technical).
And, therefore, the Majority order dated 29/09/2015 is -
The matter is remanded back to the Commissioner -
(i) To examine all Contracts in order to decide whether the activity is of "maintenance or repair" only.
(ii) To examine whether the output services provided by the appellant are covered under the taxable service of “maintenance or repair” when the activity also involved development and designing of the software.
(iii) To examine whether the refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules is available when Rule 3 permitted credit on input services only to provider of taxable services.
(iv) To examine whether the refund was admissible to service provider under Rule 5 of the Cenvat Credit Rules (as it stood during the period in question) which provided refund to manufacturer only.
(See 2015-TIOL-2295-CESTAT-MUM)
