In a significant ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bengaluru Bench, has provided relief to Oracle India Pvt. Ltd., by holding that no service tax demand can be imposed for the period prior to the introduction of the relevant levy.
A Show-cause notice dated 26.08.2010 was issued for the period 2008-09 and 2009-2010, demanding duty of Rs.15,50,51,472/- which was confirmed vide the impugned Order-in-Original No.146/2011 dated 30.08.2011. The Commissioner invoking suppression on the part of the appellant, confirmed duty amount of Rs.13,81,18,580/- along with the interest in terms of proviso to Section 73(1) read with Section 73(2) of the Finance Act, 1994 by allowing the cum-tax benefit.
The decision came in response to a dispute regarding the applicability of service tax on software updates provided by Oracle under contracts signed before the introduction of the Information Technology Software Service (ITSS) tax on May 16, 2008.
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The case centred around the Department’s contention that Oracle should pay service tax on a pro-rata basis for software updates provided under contracts where the service extended beyond May 16, 2008, even though the contracts and payments were completed before that date. The Department had issued a show-cause notice to Oracle, demanding service tax for the period 2008-09 and 2009-10, arguing that the service tax was applicable to the portion of services rendered after the introduction of ITSS.
Oracle contested the demand, arguing that the taxable event is the provision of service, and since the contracts and payments were made before the levy was introduced, no service tax could be applied retrospectively. They further pointed out that they had already paid VAT on these transactions as the software updates were treated as goods, and imposing service tax would amount to double taxation.
The CESTAT Bench of Judicial Member D M Misra and Technical Member R Bhagya Devi examined the arguments and the applicable law, concluding that the service tax could not be levied on transactions where the taxable event occurred before the introduction of the levy. The Tribunal emphasised that the contractual agreements, invoices, and payments were all completed before May 16, 2008, and the mere fact that the services extended beyond this date did not justify the imposition of service tax.
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The Tribunal also rejected the Department’s argument for pro-rata taxation, noting that there is no statutory provision allowing for such bifurcation of tax liability. Additionally, CESTAT highlighted that earlier show-cause notices for the same period classified the transactions under a different category, which had been resolved under the Sabka Vishwas Dispute Resolution Scheme, further negating the Department’s claim.
Thus, the Tribunal set aside the demand, ruling in favour of Oracle.
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