M. Veeraiyan, Member (T)

1. These two applications for waiver of pre-deposit of the amounts as per impugned order involve common issues and, therefore, being dealt with by this common order. Heard both sides extensively.

2.1 The applicants are 100% E.O.Us operating under STF Scheme. The applicants are undertaking certain services to parties, like M/s. Motorola India Electronics Ltd., M/s. ABB Global Services, M/s. Philips Software, M/s. Infineon Technologies India Pvt. Ltd., M/s. Staccato Communications Inc. USA who are also STP units. According to the applicants, they are involved in development of software, testing of the same and undertaking modification and up gradation in the course of use of the software developed by them as advised by their clients and therefore, their activities should be treated as falling under the "Information Technology Software Services" under Section 65(105)(zzzze). On the other hand, the department has held that the applicants have merely supplied qualified personnel for undertaking development of software by the clients and therefore, their activities will fall under the category of "Manpower Supply Services" falling under Section 65(105)(k).

2.2 Accordingly, a sum of Rs. 4,3,32,367/- along with interest stands confirmed from M/s. Integra Micro Software Services (P) Ltd. for the period June 2005 to April 2008 besides imposition of penalty. Similarly, in the case against M/s. Integra Micro Systems (P) Ltd, a sum of Rs. 2,27,81,640 stands demanded as Service tax along with interest besides imposition of penalty.

3. The learned Advocate for the applicants, after taking us through the agreements entered between the applicants and their clients, submits that they undertake to full-fledged development of software for various applications as desired by their clients. For the said purpose, they deployed their manpower both at their own premises and premises of their clients. The teams working in different projects are directly supervised by the Project Managers of the applicant companies. The personnel working in various projects are under the payrolls of the applicant companies. The entire responsibilities to develop the software and to test the software and to make available the software to the applicants to their satisfaction is on the applicants. Only the billing is done based on "fixed cost" and "time and material cost." Merely because the billing indicates that it is with reference to the man-hour, man-day, man-month of personnel deployed, the amounts are payable, the same cannot be treated as mere supply of manpower.

4. The learned Jt. CDR reiterated the findings and reasoning of the original authority. He submits that it is merely a case of supply of qualified manpower for the various clients for developing software by the latter.

5. We have carefully considered the rival submissions and examined the agreements. On perusal of the agreements, we, prima facie, counter with the submissions made by the learned Advocate that the agreements are not for mere supply of manpower but for undertaking entire activities relating to development of software to the satisfaction of their clients including modification and up gradation of the said software based on difficulties being pointed out by the clients while using the software developed by the applicants. We also find from the agreements that the clients have right to ask for changes in the software made by the applicants and have right to delay the payment till the completion of the "deliverables" and even to reject payment if the work is not satisfactory. The personnel including the project Managers are on the payrolls of the applicant companies only. In view of the above, we hold that the applicants have made out prima facie case for waiver of pre-deposit and accordingly, we grant waiver of pre-deposit of the dues adjudged in the impugned orders and stay recovery thereof till the disposal of the appeals. The stay applications are allowed. Considering the high stakes involved, we deem it appropriate to list the appeals for out of turn hearing. Accordingly, the appeals will be taken up for final hearing on 16th November 2011.