The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand and observed that the sale of customized software on CD as part of the Distributed Control Systems (DCS) is not service.
The appellants, Yokogawa India Limited, are engaged in the manufacture of “Distributed Control Systems” (DCS) falling under Chapter sub heading 90328990 of Central Excise Tariff Act, 1985. It comprises of both hardware and software. The said DCS is required and used for process automation in various industries including in refineries, petrochemicals, cement plants.
The appellants have been availing exemption under Notification No. 6/2006-CE dt. 01/03/2006 under the category of Customized Software mentioned at Sl. No. 27 of the said notification by treating the customized software as goods. After introduction of service tax on ‘Information Technology Software Services (ITSS) w.e.f. 16/05/2008 and subsequent amendments to the said definition in 2009.
It was alleged by the Department that the activities undertaken by them viz. development, adaptation, upgradation, enhancement, implementation, design and promotion and other similar services relating to ITSS as per the requirement of the customers, they failed to discharge service tax on the customized software for the period from 16/05/2008 to 31/08/2009.
The counsel for the appellant contended that when the customized software for DCS cleared by classifying the same under Chapter sub-heading 8523 of CETA, 1985, in a recorded media, then it cannot be considered as rendering taxable services also under the category of ITSS brought into effect from 16/05/2008. It was further contention that the said action of the Department would amount to approbating and reprobating simultaneously and apparently would amount to double taxation, which is not permissible in law.
The Authorized Representative for the Revenue reiterated the findings of the Commissioner submitted that the activities carried out by the appellant viz. development, adaptation, upgradation, enhancement, implementation, design and programming and other similar services related to information technology services as per requirement of the customers attract service tax under the category of ITSS provided to their clients as per Section 65(105)(zzzze) of the Finance Act, 1994.
Quashing the service tax demand a Division Bench comprising DM Misra, Judicial Member and R Bhagya Devi, Technical Member observed that “In the present case, the Purchase Orders placed by the customers on the appellant reveal that the transaction between the appellant and their customers are not for supply of software as that of a ‘service’, but it is sale of the customized software on a CD as part of the DCS; accordingly, the same should be considered as ‘excisable goods’ and not as ‘service’, precisely, ITSS.”
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