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ST - When CBEC itself was not sure about tax liability on said services, extended period of limitation cannot be invoked: CESTAT

By TIOL News Service

MUMBAI, DEC 06, 2017: THIS appeal has been filed against confirmation of demand of service tax and imposition of penalty under Section 76 and 78 in respect of 'Maintenance and repair service' alleged provided by the appellant.

The appellants argued that vide circular no. 70/19/03-ST dated 17.12.2003, the CBEC had clarified that maintenance and repair service of software is exempted vide Notification 20/2003-ST dated 21.08.2003 as also by Notification 4/99-ST dated 28.02.1999.

However, later on vide Circular no. 81/2/2005-ST dated 07.10.2005, CBEC clarified that in view of the Apex Court's decision in the case of Tata Consultancy Services - 2004-TIOL-87-SC-CT-LB holding that software is goods, therefore repairs and maintenance of software is nothing but repairs and maintenance of "goods" and same would be leviable to service tax. This view was once again reiterated vide Circular no. 256/1/2006-CX.4 dated 07.03.2006 wherein it was clarified that service tax would be leviable on maintenance and repair w.e.f. 09.07.2004 as Notification 20/2003-ST was rescinded.

Inasmuch as the appellant submitted that they had discharged service tax liability w.e.f. 07.10.2005 after the aforesaid clarification by the Board regarding leviability of service tax on repair of computer software and earlier they had not paid service tax under bonafide belief that they are exempted from service tax and their belief was based on Board circular dated 17.12.2003.

Moreover, the definition of Management, Maintenance and repair service was amended with effect from 01.06.2007 and an explanation was added to clarify that the term goods include the computer software for the purpose of service tax.

Nonetheless, the said circular dated 07.10.2005 was held to be contrary to the statutory provisions by the Madras High Court in Kasturi & Sons Ltd.-2011-TIOL-240-HC-MAD-ST , the appellant added.

It is further argued that the demand is hit by limitation because the same was the result of a change of mind of CBEC and even the Board was earlier of the view that no tax is payable on the said activity.

The AR supported the order.

The Bench adverted to each of the Circulars issued by the Board and relied upon by the appellant and observed –

"6. It is seen that even CBEC was not sure about the liability of service tax on the said services during the period 09.07.2004 to 06.10.2005. The first circular approving the liability of service tax on the said activity was issued on 07.10.2005 and the circular prior to that clearly held that the said service is not taxable. In these circumstances, it cannot be said that the appellants could not have had a bonafide belief that the said service was not taxable. The show-cause notice and impugned order does not give any specific grounds as to why extended period can be invoked in such circumstances. In these circumstances, we find that the extended period of limitation cannot be invoked and consequently the demand of duty and penalty cannot be sustained."

The appeal was allowed.

(See 2017-TIOL-4286-CESTAT-MUM)


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