RAMESH NAIR

1. Brief facts of the case are that the appellant are engaged in providing various taxable services viz. Maintenance and Repair service', Erection, Commission & Installation', Commercial Training & Coaching', Transport of Goods by Road', Intellectual Property Services other than Copyright', Business Auxiliary Service (BAS) and "Information Technology Software Service' and registered with the Service Tax Department having service tax No.AABCC0881DST001. During the course of Audit, it was noticed that appellant are subsidiary of their parent company M/s. Ferromatik Milacron, USA and they had received Enterprise Resources Planning (hereinafter referred to as "ERP") System from them. The parent company had charged to its subsidiary company for the said ERP system. The appellant had paid Rs.72,71,565/- for the year 2006-07 and Rs. 11,10,672/- for the year 2007-08. The ERP system was to be used by the appellant for business related activities such as pay roll proceeding, accounts management etc and for these uses, though computer will be used, yet these activities cannot be termed as activities primarily in relation to computer system and cannot be classified under the category of Information Technology Service'. The use of computer is secondary and the primary activity is that business related work. Hence, the department considered that the providing ERP system was a taxable service and to be classified under the category of Business Auxiliary Service, and liable to pay service tax of Rs. 8,98,776/- and Rs.1,37,279/- for the period 2006-07 and 2007-08 respectively. In this case, since the service provider (parent company) is located outside India, hence, the service recipient is liable to pay service tax under provision of Rule 2(d)(iv) of the service Tax (Amendment) Rules, 2002 w.e.f. 16.08.2002 and as per the amended Rules 2(d)(iv) substituted by Service Tax (fifth amendment) Rules, 2005 w.e.f. 16.06.2005, the person receiving taxable service in India was liable to pay up Service Tax and as per sub-section (2) of Section 68. As the appellant failed to pay the service tax, a SCN dated 12.01.2010 was issued to the appellant proposing recovery of ST amount of Rs. 10,36,055/- (Rs. 8,98,776/- and 1,37,279/- for the period 2006-07 and 2007-08 respectively) under Section 73(1) read with Section 68 of the Finance, 1994, invoking extended period of five years, on said amount paid by them to their parent company under "Business Auxiliary Service" along with interest at applicable rate under Section 75 and also proposed penalties under Sections 76,77 & 78 of the Finance Act, 1994. The said SCN was adjudicated by the adjudicating authority vide impugned order and demand was dropped.

1.1. Being aggrieved with the impugned order the appellant preferred the appeal before the Commissioner, (Appeals). The Commissioner (Appeals) vide Order-In-Appeal dated 07.02.2013 allowed the appeal filed by the appellant and set aside the impugned order.

1.2. On appeal being filed by the appellant against said order 07.02.2013 issued on 12.02.2013 of the Appellate Authority, the CESTAT, Ahmedabad vide its Order No. A/11127/WZB/AHD/2013 dated 27.08.2013 allowed the appeal by way of remanding the case back to the Appellate Authority for fresh adjudication after following the principles of natural justice. While remanding back, the Tribunal has specifically observed that-

"Learned counsel brought to our notice that adjudicating authority has clearly recorded that ERP System is related to software networking and is liable to be charged with effect from 16.05.2008 and there is no finding of the first appellate authority on this point. We find that the claim of the appellant before us regarding the services for which they have paid an amount under ITES & is subject to tax liability with effect from 16.05.2008, has not been addressed to by the first appellate authority in the impugned order before us....3. Since this issue is one of the core issues which needs to be addressed for assessability of any services under the provisions of Section 66A of the Finance Act, 1994, we set aside the impugned order and remit the matter back to the first appellate authority to reconsider the issue afresh."

The learned Commissioner (Appeals) once again dismissed the appellant's appeal. Therefore the present appeal is before us.

2. Shri S.J. Vyas, learned counsel appearing on behalf of the appellant, at the outset, submits that the demand was confirmed under the head of Business Auxiliary Service which during the relevant time clearly excluded the IT Service and there is no doubt that the ERP System procured from their head office at USA is an IT Service, therefore, the same is not taxable. In support of his submission, he placed reliance on the following judgments:

• DATAWARE & M/s. P.RC ASSOCIATES KURNOOL 2008 (3)TMI 33- CESTAT BANGALORE

• FEDERAL BANK LTD 2008 (11) TMI 115 - CESTAT-BANGALORE

• BASF INDIA LTD  2023 (6) TMI 997-CESTAT AHMEDABAD

• CCE vs. L&T LTD 2015 (8) TMI 749 (SC)

• SHRESTH LEASING & FINANCE LTD  2022 (7) TMI 768-CESTAT AHMEDABAD

2.1. He further submits that after the amendment in BAS when the exclusion of IT Service was removed, the appellant started paying service tax which is not objected by the department, therefore, the classification of service under Information Technology Service was not questioned by the department, therefore, for the past period also the service being of Information Technology Service (IT Service), the same was excluded from BAS.

2.2. Without prejudice to his above submissions, he further submits that the demand was raised for the period 2006-07 to 2007-08 whereas the Show cause notice was issued on 12.01.2010 which is after the normal period of limitation, therefore, the entire demand is hit by limitation. He further submits that if at all the service tax is payable on the service in question, the appellant are entitled for the cenvat credit, therefore, the entire exercise is Revenue neutral and for this reason also the demand for extended period cannot be made.

3. Shri A.K. Samota, learned Superintendent (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.

4. On careful consideration of the submissions made by both the sides and perusal of records, we find that there is no dispute that the appellant have received ERP System for their use from their head office USA. In case of service tax liability and reverse charge mechanism, the service tax is payable considering the service provided by the service provider in the present case head office USA is a service deemed to have been provided by the service recipient, therefore, in case of procurement of ERP System, the appellant's head office USA is a service provider of ERP system which is nothing but Information Technology Service, therefore, in the hand of the appellant, the classification service must be same as IT Service. In the present case, the demand was raised under BAS which admittedly excluded the IT Service, which is not in dispute for the relevant period. However for the subsequent period exclusion of IT Service from Business Auxiliary Service was removed and thereafter the appellant have classified the very same service under IT Service and started paying service tax which has been accepted by the Revenue, therefore, the Revenue cannot take a stand that prior to the amendment in Business Auxiliary Service, the service tax shall not be classified under IT Service and thereafter the same service is rightly classified and accepted under IT Service, therefore, in our considered view, the service received by the appellant is indeed Information Technology Service and during the relevant period, the same was not taxable in terms of exclusion from Business Auxiliary Service. This issue is supported by following various judgments:

• DATAWARE & M/s. P.RC ASSOCIATES KURNOOL 2008 (3)TMI 33-CESTAT BANGALORE

"5. The relevant portions in the contract are reproduced below for understanding the scope of the services rendered by the appellants.

(3) The Accounting Agency shall upload and download the data from the Spot Billing machines directly either by departmental staff or by spot billing agencies on regular basis and the data in other formats shall not be accepted to avoid data manipulation.

(4) The Accounting Agency shall validate the spot billing data furnished by the Departmental Staff or Spot Billing Agency with the software maintained and analyze the correctness of the bills issued to the consumer duly furnishing reports on regular basis.

(5) The Accounting Agency shall prepare the D-list of defaulting consumers every month by the 3rd of succeeding month and furnish it to the concerned ERO on the same date. The Agency shall also prepare the D' list for defaulting consumers as and when required in the middle of the Month. The AAO/ ERO in turn will handover the returned D-List to the Accounting Agency before the end of the month for review and furnish with remarks to E.R.O.

(6) The Central Power Distribution Company of A.P Ltd. shall supply the required input data to the Accounting Agency who shall furnish the following monthly returns in triplicate in the following formats already communicated in the Revenue Booklet during 9/98 and amendments thereon.

(1) Formats of exceptional reports (IS Nos.);

(2) Age wise analysis of Exceptionals (Other than Agl. Services);

(3) Services appearing in different Exception lists;

(4) Abstract of Exceptionals;

(5) Performance Parameters Section-wise;

(6) Consumption pattern;

(7) Month-wise collection Revenue Cashiers;

(8) Cumulative performance of E.R.O Collections;

(9) Consumer Ledger (1 copy);

(10) Ledger Abstract;

(11) Ledger Summary;

(12) Bill Book Abstract (2 copies);

(13) Demand Collection and balance;

(14) Financial Progress Report;

(15) Credit Reconciliation Statement;

(16) C.C. Charges Arrears Report;

(17) A.C.D Revenue Report;

(18) Journal Entry;

(19) List of New Services released and added to master specifying the periods;

(20) Category changes effect in Master;

(21) Phase and Load changes effected in the Master;

(22) Name Transfers effected in Master;

(23) Services dismantled and deleted from Master;

(24) Electricity duty return;

(25) Abstract of cycle-wise services for billing;

(26) Half-yearly ledgers / annual ledgers (1 Copy);

(27) Annual Master for all the services (2 Copies);

(28) Any other reports periodically devised by APCPDCL and called for shall have to be furnished (2 copies).

(7) The agency shall furnish the C.A. T Rolls & Sales Data Base of the services maintained with them by 7th of every month in the format prescribed by the Company and any amendments thereto are also to be incorporated.

(8) The work enumerated above is not complete and exhaustive and will embrace such other functions and works as are ancillary and incidental to the work of maintaining of the consumer accounts taken up by the Accounting Agency. The Agency shall generate additional reports as may be necessary from time to time.

(9) APCPDCL contemplates implementation of Common (Software) Billing System and S.A.P (ERP). The Agency shall modify Accounting system compatible to these modules.

6. On going through the above, I find that the appellants are required to generate various MIS reports given in Para 6 of the contract and to develop the software for this purposes. Therefore, it would not be correct to state that they had not carried out Data Processing task. The services clearly fall under the scope of "Information Technology Services" and thereby they are excluded from the scope of "Business Auxiliary Services". In view of the above, I allow the appeals with consequential relief."

• FEDERAL BANK LTD 2008 (11) TMI 115-CESTAT-BANGALORE

"7. On a careful consideration of the matter, we find that Cash Management Services would be taxable under the category of Banking and other financial services only with effect from June 2007. The period involved in this case is 1-7-2003 to 31-3-2005. It is very clear during this period the Cash Management Service is specifically excluded. When the service is excluded from the scope of Banking and other financial services, the intention of the Government is not to subject it to service tax at all. Revenue cannot say that the said service would be classifiable under the category of Business Auxiliary Service and subject it to levy. Such an action would defeat the function of the government which is excluded the said activity from the scope of Banking and other financial services. Therefore, we do not find any merit in the impugned order upholding the demand of service tax and also imposing various penalties. Hence, we set aside the impugned order and allow the appeal with consequential relief."

• BASF INDIA LTD2023 (6) TMI 997-CESTAT AHMEDABAD

"4. We have carefully considered the submission made by both sides and perused the record. We find that the appellant have received services from foreign based provider namely CIBA, Switzerland and BASF, SEA, Singapore towards ERP system related services. As per the revenue, the said service up to 15.05.2008 is classifiable under management or business consultant service whereas revenue itself has admitted that the same services is classified under "Information Technology Software Service" w.e.f 16.05.2008. This clearly shows that the service received by the appellant towards implementation of ERP system related services is falling under "Information Technology Software Service". Under this admitted position by the Revenue itself the said service cannot be taxed prior 16.05.2008 under "Management or Business Consultant Service" therefore, the service tax demand which is disputed up to 15.05.2008 is not sustainable under "Management or Business Consultant Service". The very same issue under identical fact has been considered by CESTAT Bangalore in the case of IBM India Pvt. Ltd. -  2009 (4) TMI 314 wherein it was held as under :-

"6. We have carefully gone through the records of the case. The point at issue is the leviability to Service Tax under the category of management consultancy service' in respect of the ERP implementation services. It is seen that the Department attempted to classify the ERP services under management consultancy service' earlier and the Tribunal's decisions categorically held that during those time, the said services would fall under the category of consulting engineering services, however, they were excluded from the scope of consulting engineering services by virtue of initially an exemption Notification 4/99-S.T., dated 28-2-1999 initially and later by excluding it from the scope of consulting engineering services' in the definition itself. Once a particular service is excluded from the scope of service tax where it normally is supposed to fall then it cannot be taxed under some other category. This principle has been followed in the case laws of Federal Bank. Ltd. and also LalPathlabs Ludhiana, Collection Centre cases which have been cited earlier. However, w.e.f. 16-5-2008, information technology service was introduced. The definition of information technology service is

"any service provided or to be provided to any person in relation to information technology software for use in the course, or furtherance, of business or commerce, including.

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,

(iii) adaptation, up gradation, enhancement, implementation and other similar services related to information technology software,

(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on the implementation of a system, specifications for a database design guidance and assistance during the start-up phase of a new system, specifications to secure a database, advice on proprietary information technology software,

(v) acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products.

(vi) Acquiring the right to use information technology software supplied electronically."

7. In the present case, the ERP implementation service is definitely for use in furtherance of business and commerce and the service under dispute is for the implementation. So, implementation of the ERP services is specifically covered under the information technology service, which was effective only from 16-5-2008. Under these circumstances, it cannot be liable to Service Tax for a period prior to that. In the present case, the entire period is prior to 16-5-2008. The appellants have clearly shown that prior to 16-5-2008, even the services rendered by the appellant were excluded from the scope of consulting engineer's service and also the judicial pronouncements made it clear that they would not be covered under the management consultancy services. In view of these, there is no merit in the demands confirming the Service Tax of the services under the category of management consultancy services for the period prior to 16-5-2008. It should be borne in mind that the appellants have already been paying the Service Tax for ERP Planning and advice under the category of management consultancy service. Hence, the impugned orders have not merit. We set aside the same and allow the appeals with consequential relief."

From the above decision it can be seen that the service of ERP system implementation in the above cited decision and that of appellant case are absolutely identical. Accordingly, the service tax demand under the head of "management or business consultant service" for the period prior to 16.05.2008 is not sustainable. We further find that as of now it is settled legal position in the various decision cited by the appellant that if any new entry of service is introduced from a particular day the same cannot be taxed under some different existing entry prior to the enactment of new service entry for the reason that the introduction of the new service itself shows that since the same was not taxable under the existing entry prior to its introduction the same was not taxable prior to its introduction, for this reason also the revenue itself admitted that very same service of ERP implementation is classifiable under "Information Technology Software Service" w.e.f 16.05.2008 and the same was not taxable prior to this date under management or business consultant service, for this reason also the demand for the period prior to 16.05.2008 is not maintainable.

4.1 As regard the service tax liability for the period from 16.05.2008, the same has been discharged by the appellant along with interest. Hence, the same is maintained. Since the issue involved is of pure interpretational nature no mala-fide can be attributed to the appellant for non-payment or short payment of service tax, moreover, there is force in argument of the learned counsel that since the appellant was entitled for cenvat credit of the service tax demanded, entire issue is revenue neutral. Considering this undisputed fact and overall facts and circumstance of the case we are of the view that the appellant has made out a strong case for wavier of penalties invoking Section 80 of the Finance Act, 1994. Accordingly, we set aside the penalties imposed in the impugned order.

5. As per above discussion and finding impugned order is modified to the above extent. Appeal is allowed in above terms."

In view of the above judgments, it is settled that the ERP Service is clearly an Information Technology Service. The same being excluded from the Business Auxiliary Service cannot be charged to service tax under Business Auxiliary Service.

5. Without prejudice to the above, we find force in the argument of the learned counsel with regard to the limitation in the present case, if at all there is any service tax liability, the appellant is entitled for cenvat credit of the same and due to which the entire exercise will amount to Revenue neutral. In this position as settled in various judgments wherever there is a revenue neutral situation, the malafide cannot be attributed to the assessee. Considering this position, we are of the view that in the present case also, there is no mens rea or suppression of fact etc., on the part of the appellant, therefore, the demand is not sustainable on the ground of time bar also. As per our above discussion and finding, the impugned order is not sustainable. Hence, the same is set aside. Appeal is allowed.