The Chennai bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) ruled that Information Technology software services provided by Wipro Limited to Special Economic Zone (SEZ) units are fully exempt from service tax, and further noted that the appellant was not liable to pay any service tax under the reverse charge basis, as no services were provided to Microsoft.
The appellant, Wipro Limited registered with the Service Tax Commissionerate since May 16, 2008, provides Information Technology Software Services (ITSS). The Department contends that the appellant received IT services from Microsoft Corporation, Singapore, and paid service tax on these services under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The services were used to deliver output services to domestic consumers.
Upon investigation, the Department discovered that the appellant had a Microsoft Channel Agreement allowing them to distribute Microsoft licenses to domestic customers. Under the Volume Licensing Programme, large clients (with around 200-250 computers) could acquire software licenses through the appellant rather than obtaining physical software. The Department asserts that Microsoft provided IT services to the appellant, making the latter liable for service tax from March 2009 to September 2009 for payments made to Microsoft.
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The Department claims that the appellant failed to pay service tax on IT services when the end customers were located in Special Economic Zones (SEZs) while service tax was paid for domestic customers outside SEZs. The exemptions cited by the appellant under various notifications do not apply to IT services received from abroad, for which the appellant is liable to pay service tax.
The total service tax due from the appellant is estimated at ₹14, 83, 51,647 for the period from May 16, 2008, to September 15, 2009.
Mr. S. Muthuvenkataraman, counsel for the appellant, argued against the demand. He contended that the services received from Microsoft do not constitute taxable IT services as defined in the Finance Act. He highlighted that Microsoft did not sell software to the appellant but authorized them as a reseller. Thus, the payments made do not reflect a purchase of IT services but a facilitation of software sales.
The appellant pointed to specific transactions, asserting that the licenses received prior to May 16, 2008, are not subject to service tax. They also noted that adjustments made to service tax payments were legitimate.
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Special Counsel Mr. C. Subramanian maintained that the appellant indeed received IT services from Microsoft and that the demand for service tax on transactions with SEZ customers is valid. The Department argued that the agreements and payment records show that the appellant is liable to pay service tax on all IT services received, regardless of the customers’ locations.
The bench indicated that the critical issue is whether Microsoft provided taxable IT services to the appellant. They found insufficient evidence to support the Department’s claim that ownership or rights to the software were transferred to the appellant. The appellant’s role was deemed as facilitating the transaction rather than receiving IT services.
The two member bench of the tribunal comprising Vasa Sesha Giri Rao (Technical member) and Sulekha Beevi C.S (Judicial member) ruled that the remaining issues related to service tax adjustments and credits are contingent on the resolution of the primary issue. Consequently, the appeal was remanded to the Adjudicating Authority for fresh consideration of all issues in light of the findings regarding the first issue. The earlier impugned order was set aside.
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