The Customs Excise and Service Tax Appellate Tribunal (CESTAT) upheld the decision of the Commissioner of GST & Central Excise to impose tax on the service provided.
The appellate authority ruled that the taxability of the Information Technology started from the date of right of use is granted and not from the date of downloading.
The facts of the matter are that the appellant, M/s. United India Insurance Co. Ltd was engaged in providing services under the category of “general insurance” services” and “insurance auxiliary service” as defined under clause 55 of section 65 of the Finance Act 1994.
The timeline indicated that on October 31, 2007, UIIC and Hewlett Packard (HP) signed a master contract for HP (a subcontractor) to provide Core Insurance Solution to UIIC over a seven-year term. In December 2007, the core insurance application software with original media was downloaded into the UIIC system.
According to sub-paragraph Section 65(105)(zzzze) of the Finance Act of 1994, Information Technology Software Service was included in the tax net as of May 16, 2008. Any service supplied to its members [or any other person] by any club or association in regard to the supply of services, facilities subscription, or any other money is defined by the section as a taxable service.
On November 11th, 2008, the master contract was amended to state that UIIC would pay the vendor, M/s SSPSL UK, directly in dollars for the goods, services, and deliverables they had given. On November 27, 2008, 50% of the licence price was paid, and the remaining 50% was not paid until the day the original order was issued. The 2011 Point of Taxation Regulations only became effective on March 1, 2011.
Since SSPSL was incorporated in the UK and has no permanent establishment in India, the appellant was found liable to pay service tax on the service provided by SSPSL, in view of section 66A of the Finance Act 1994.
Consequent to the audit objection, the appellants sought refund of the same as they were of the view that no tax was payable on the supply even prior to the introduction of the service in the Finance Act.
Revenue contended that mere supply of IT software cannot be said to make the service complete unless other incidental activities are completed. Hence the date of downloading the software is not relevant to determine the taxability of the service.
The bench noted that, according to the timing of events, only after the Information Technology Software Service was included in the tax net as of May 16, 2008, did all other significant activities that facilitated the genuine right to use the software take place.
Also, even though it was done with an earlier effective date of January 1, 2008, the End User License Agreement (EULA) was signed on May 27, 2008. The EULA can only be declared to have been operationalized, or signed, on August 27, 2005, for it to be deemed operationalized.
According to the facts and circumstances of this Agreement, the “right to use information technology software supplied electronically” will therefore only begin at this point, according to the bench of P. Dinesha and Ajit Kumar, and is the crucial event on which the obligation to pay tax will become fixed.
The bench decided that this being so the service has been supplied only after Information Technology Software Service was brought under the tax net and is hence subject to the levy.
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