CESTAT quashes Service Tax Demand on Software services under extended Period of limitation [Read Order]

The two member bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) Ahmedabad, has quashed the service tax demand on software services under the extended period of limitation.

The appellant had paid service tax on the reverse charge basis in respect of the service received from abroad M/s Fisher Rosemount System only on some activities such as project management and validation service. However, for the remaining activities of the Foreign Service provider no service tax is paid on the ground that those services are related to software services which became taxable only with effect from 16.05.2008, whereas the period in the present case involved was from March, 2006 to March, 2008.

the appellant that the services are not classifiable under ‘management consultant service’ whereas the same is prima facie classifiable as software services in view of the judgment in the case of IBM India Pvt. Ltd (Supra) and the services of software came under the tax net w.e.f. 16.05.2008.

 In the present case against the same contract the appellant has been paying service tax in respect of some of the activity of service received from the board, whereas in respect other activities, they have not paid the service tax under a bona fide belief that those are related to software services.

Moreover, on the entire services they have been paying service tax while providing services to M/s Reliance Industries Ltd. It was also fact that whatever service tax was paid on the part of the activity i.e. project management and validation service, the appellant have availed the Cenvat credit and they are discharging the service tax in respect of overall services which includes all the activity of service received from abroad, while forwarding to M/s Reliance Industries Ltd.

In this case, if there was any tax liability as claimed by the department, the same was clearly available as Cenvat credit to the appellant. Therefore, the entire exercise was revenue neutral. In this position, no mala fide could be attributed to the appellant as there was no intent to evade payment of tax due to the revenue neutrality of the case.

The tribunal of Ramesh Nair ( Judicial member ) and C.L.Mahar ( Technical member ) observed that it was settled law that when there was revenue neutrality in any demand, no suppression of fact could be attributed to the assessee. The case was on much better footing as the appellant had paid service tax on the part of the activity of the service received from abroad. Therefore, there had been no suppression of fact on the part of the appellant.

Moreover, the case was clearly about revenue neutrality. The demand had been raised for the period from March 2006 to March 2008, whereas the show cause notice had been issued on 20.06.2011, i.e., much after the normal period. Accordingly, the entire demand fell under the extended period.

Accordingly, CESTAT concluded that the demand was not sustainable on the ground of limitation itself. Hence, impugned order was set aside.

To Read the full text of the Order CLICK HERE

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