By TIOL News Service

MUMBAI, OCT 07, 2014: A Service Tax demand of Rs.5.39 crores was confirmed against the appellant by the CCE, Pune-I by classifying the services received by them under 'Business Auxiliary Service'. The period of demand is from 18/04/2006 to 15/05/2008.

The first part of the demand of Rs.3.76 crores is in respect of IT services received by the appellant from M/s. SKF, Sweden and the second part of the demand consists of an amount of Rs.1.63 crores in respect of various expenditure incurred by the appellant towards foreign currency purchase, professional management fees, group management programmes, engineering software support services, etc.

While allowing the Stay petition, the Bench had held -

6. We find that with effect from 16.5.2008, Information Technology service became taxable under the Finance Act. As per the definition of Information Technology Service provided under Section 65 (35a) means any representation of instructions, data, sound or image, including source code an object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment. We have gone through a copy of the agreement which is on record whereby the applicants are undertaking activity system development and maintenance, computer operations and support, etc. In view of above, we prima facie find the merit in the contention of the applicant that the applicant is not providing business auxiliary service but in fact are providing Information Technology service which has become taxable only with effect from 16.5.2008. In view of above, pre deposit of the dues is waived and recovery thereof stayed during the pendency of the appeal.

The appeal was heard recently.

The appellant inter-alia submitted that the definition of 'Business Auxiliary Services' as it stood at the relevant time, specifically excluded IT software services from its purview and 'information technology software service' was brought under service tax w.e.f. 16/05/2008. So also, ECS charges, group management programme, BST charges, hotel booking charges, foreign currency purchase fees, management fees, data cost etc. are also related to IT software procured by the appellant from the foreign entity and this would also not fall within the purview of 'Business Auxiliary Service'. Reliance is also placed on the decision in UTI Technology Services Ltd. 2012-TIOL-73-CESTAT-MUM. In as much as it was submitted that the order should be set aside.

The AR submitted that the services received by the appellant would qualify as 'customer care services' and, therefore, are rightly leviable to service tax under 'Business Auxiliary Services'.

The Bench observed-

++ From a perusal of the agreement entered into between the appellant and SKF, Sweden, it is clear that the said agreement provided for development, maintenance and installation of software systems by the foreign entity to the appellant and supply of information, data, providing training, etc. In the IT software field, Information Technology Software service was specifically excluded from the scope of 'Business Auxiliary Services' and the same was made taxable only w.e.f. 16/05/2008 when a separate entry for 'Information Technology Software Services' was introduced in the statute book. Therefore, we agree with the appellant's contention that the services received by the appellant fall within the category of 'Information Technology Services' and therefore, would not be liable to service tax for the period to 16/05/2008.

++ Revenue contention that it is a customer care service is devoid of any merit for the reason that, in respect of customer care service there would be three persons involved, the principal service provider, the customer and the intermediary who undertakes the service on behalf of the principal, the service provider. In the present case, on perusal of the agreement, it is seen that there are only two parties involved SKF, Sweden and SKF, India and there is no third party involved. Further, the service received by the SKF India, the appellant herein, is for its own use and not for providing any service to any other party. Therefore, the argument of the Revenue that the services received would fall within the ambit of 'customer care' is totally bereft of any logic and devoid of any merit.

++ As regards the demand of Rs.1.63 crores, we notice that the various services received do not come anywhere near the definition of 'business auxiliary service' or 'customer care service' as has been held in the impugned order. Thus, we find that the impugned order is clearly unsustainable in law.

In fine, the order was set aside and the appeal was allowed.

(See 2014-TIOL-1924-CESTAT-MUM)