By TIOL News Service

MUMBAI, APRIL 26, 2017: A Service tax demand of Rs.1,20,10,638/- as provider of 'Maintenance of Repair service' for the period from 9th July 2004 to 6th October 2005 was confirmed by the adjudicating authority.

The facts are that the appellant had entered into a contract with eight recipients of service, namely, M/s Ship Building Centre, Visakhapatnam, M/s. MTR Foods Limited, Bangalore, M/s L&T Case Equipment Pvt. Ltd, Pithampur, M/s Audco India Ltd, Chennai, M/s L&T Komatsu Limited, Bangalore, M/s Ultra Tech Limited, Mumbai and M/s Larsen & Toubro Limited, Powai, M/s. L&T John-Deere Pvt. Ltd, Pune for various activities including support and maintenance of facilities and maintenance of IT infrastructure services.

The appellant had been discharging service tax on 'Maintenance of software services' with effect from 7th August 2005.

It is the contention of the appellant that they provided 'Information technology services' and this was rendered taxable only with effect from 10th May 2006.

It is their further submission that, even if service is taxable as provider of 'management-cum-maintenance or repair service', it is only by insertion of explanation in section 65(64) of Finance Act, 1994 with effect from 16th May 2008 that computer software came to be included as goods with liability to tax under section 65(105)(zzg) of Finance Act, 1994.

The appellant relies on the decision in SAP India Pvt. Ltd - 2010-TIOL-1569-CESTAT-BANG and Phoenix IT Solutions Ltd. - 2011-TIOL-2045-CESTAT-HYD .

The AR relied on the decision in Choudhary International Pvt. Ltd. [ Final Order No. A/2012/2013-WZB/C-I(CSTB)] which distinguished the application of the decision of the Tribunal in re SAP India Pvt. Ltd by holding that the service is classifiable under "information technology service" when the bulk of the activity was related to up-gradation and enhancement of software which takes it out of the purview of 'maintenance or repair'.

The Bench observed –

"6. There is no doubt that the definition of maintenance or repair of software relates to properties, whether movable or immovable and it has been held that software is goods. Consequent upon this, the explanation was inserted in section 65(105)(zzg) and as pointed out supra, this Tribunal has considered in Phoenix IT Solutions whether the insertion of the explanation could further the case of Revenue for demand of tax from the date that the service was made taxable. Taking all factors into consideration, the Tribunal has held that there is no retrospective application by insertion of the explanation. The period under dispute in the present case is from 9th July 2004 to 6th October 2005."

By following the decision of the Tribunal in re Phoenix IT Solutions, the CESTAT held that the demand of service tax is not sustainable.

The appeal was allowed.

(See 2017-TIOL-1396-CESTAT-MUM)