Measure of levy does not determines the nature of levy.

PJ/Case Law/2014-15/2379

Case:-LEAR AUTOMOTIVE INDIA PVT LTD Vs COMMISSIONER OF SERVICE TAX -II, MUMBAI

Citation:-2014-TIOL-1715-CESTAT-MUM

Brief facts:-The appeal and say petition are directed against Order-in-Original No. 56/ST-II/RS/2013 dated 25/09/2013 passed by the Commissioner of Service Tax - II, Mumbai. Vide the impugned order, the learned adjudicating authority has confirmed a service tax demand of Rs. 30,79,501/- along with interest thereon against the appellant M/s. Lear Automotive India Pvt. Ltd. by classifying the service received by them under the category of ‘Management, Maintenance or Repair Service’ and confirming the demand for the period 18/04/2006 to 15/05/2008. He has also imposed penalties on the appellant under Sections 76, 77 and 78 of the Finance Act, 1994. Aggrieved of the same the appellant is before the Tribunal.

Appellant’s contention:-The learned counsel for the appellant submits that the appellant entered into a software usage agreement with M/s. Lear Corporation of USA, as per which the appellant was allowed usage of specified software mentioned in the agreement. For the services rendered, the appellant was liable to pay Lear USA, proportionate amount of annual maintenance charges which Lear USA pays to various vendors of these software. The learned counsel submits that the appellant has been discharging service tax liability on the services received w.e.f. 16/05/2008 under ‘Information Technology Services’ and there is no dispute with regard to the classification adopted by the appellant from the said date. However, for the period prior to 16/05/2008, the Revenue seeks to classify the services under ‘Management, Maintenance or Repair Service’ only on the ground that the consideration for the services received have been passed on to the service provider on a proportionate amount of annual maintenance charges which the service provider pays to various vendors of the software.

The learned counsel also submits that in terms of the agreement, apart from receiving the software through the internet, the appellant also receives upgrades and amendment to the software. However, since these amendments and upgrades are received electronically, the software received cannot be considered as goods and since management, maintenance or repair service relates to those activities in respect of goods, the activity will not fall within the purview of ‘management, maintenance or repair service’.

He also refers to the amendments made to Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 wherein it has been specified that, in relation to the management, maintenance or repair service, if these were provided in relation to any goods or material or any immovable property, as the case may be, situated in India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed in India, shall be treated as the taxable service performed in India. This amendment was made w.e.f. 01/03/2008. The service tax liability, if any, subsequent to 01/03/2008 would be negligible. In the light of these submissions, he pleads for grant of stay.

Respondent’s contention:-The learned Additional (AR) appearing for the Revenue reiterates the findings of the adjudicating authority.

Reasoning of judgment:-The Hon’ble Tribunal have carefully considered the submissions made by both the sides. From the agreement entered into between the appellant and Lear, USA it is clear that the agreement provides for usage of specified computer software for which the appellant pays consideration. It is not for maintenance or repair that the appellant is making payments but for the usage of the software. Only the mode of consideration for payment for the services rendered has been linked to the annual maintenance charges which Lear USA pays to various vendors. This does not mean that the payment is for maintenance of computer software. They are therefore, prima facie of the view that the services received by the appellant do not fall within the category of ‘Management, Maintenance or Repair service’ and would fall more appropriately under ‘Information Technology Service’ which was brought under the tax net w.e.f 16/05/2008. Even if hypothetically it is assumed that the services fall under ‘management, maintenance or repair service’ prior to 01/03/2008 there was no provision in law enabling Revenue to tax this activity under ‘management, maintenance or repair service’ when the services were rendered electronically or through a computer network. On this ground also the impugned demands do not appear to be sustainable in law. It is a well settled position in law that measure of levy does not determine the nature of levy as affirmed by the hon’ble apex Court in the case of Bombay Tyre International [1983 (14) ELT 1896 (SC)] 2002-TIOL-33-SC-CX.Thus, the appellant has made out a strong prima facie case for grant of wavier of pre-deposit. Accordingly, they grant unconditional waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal.

Decision:- Stay granted.

Comment:- The analogy of the case is that service relating to use of software will not fall under the category of management, maintenance or repair services merely because the consideration that is paid is being linked to annual maintenance charges. It has also been held by the Apex Court in the case of Bombay Tyre International that measure of levy does not determine the nature of levy. Accordingly, the services were leviable to service tax under the category of “Information Technology Services” and not under “Management, maintenance or repair service”. Moreover, when a service is classified under a particular category, the same service cannot be classified under another category for some prior period.

Prepared by:- Monika Tak

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PJ/Case Law/2014-15/2379

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