Whether computerized data processing services are leviable to service tax under BAS?

PJ/Case law/2012-13-1554

Case:- TCS E-SERVE LTD. VS COMMISSIONER OF SERVICE TAX, MUMBAI-II

Citation:- 2013-TIOL-636-CESTAT-MUMBAI

Issue:- Whether computerized data processing services are leviable to service tax under BAS?

Brief Facts:- The appellant are engaged in providing various services India and abroad. They undertook collection and sales services, call center services and computerized data processing services for the client. On the collection and sales services they have been discharging service tax liability under ‘Business Auxiliary Services (BAS)' w.e.f 01/07/2003 and on call center services they have been discharging service tax liability under BAS w.e.f 01/03/2006 as the said service was exempt prior to 01/03/2006. In respect of computerized data processing services, they have been discharging service tax under the category of ‘Business Support Services' w.e.f 01/05/2006 when the said service was brought under tax net. On 20/10/2003 the appellant wrote a letter to the jurisdictional Range Superintendent informing the department of the activities undertaken by them and also conveying that IT services in the nature of computerized data processing services undertaken by them are outside the purview of ‘Business Auxiliary Service'. On 23/10/2008 the department issued a show cause notice for the period July, 2003 to March, 2004 to the appellant with respect to “computerized data processing” undertaken by them proposing to classify the same under ‘Business Auxiliary Services' as defined under section 65(19)(iv) of the Finance Act, 1994 and demanded towards service tax demand under section 73 of the Finance Act, 1994 along with interest thereon apart from proposing penalties under sections 76, 77 and 78 ibid.

The notice was adjudicated vide the impugned order and the adjudicating authority came to the conclusion that the appellant's responsibility included collection of documents from the client's customers and, therefore, the nature of the service provided by the appellant is not restricted to computerized data processing and is liable to service tax as the activity undertaken is incidental or ancillary to the customer care service provided by their client to their clients. Accordingly, he confirmed the demand along with interest and also imposed penalties under sections 76, 77 and 78. Aggrieved by the order appellant filed appeal before Tribunal.

Appellant’s Contention:- The appellant submit that there is a variation in the allegation made in the show cause notice and in the findings and conclusions drawn by the adjudicating authority with respect to the transactions undertaken by us. While the show cause notice alleged that the appellant's service is ‘computerised data processing' which is incidental or ancillary to the customer care services undertaken by their client to their customers, in the impugned order, a totally different ground has been taken to confirm the demand. The adjudicating authority has concluded that the appellant is collecting raw data from the client's customers which is factually incorrect and which is not the proposition in the show cause notice and, therefore, the basis of which the findings have been given by the adjudicating authority is contrary to the facts and on that ground alone the impugned order is not sustainable in law. The appellant further points out that as per the definition of ‘Business Auxiliary Services' under section 69(19) of the Finance Act, 1994, in the explanation thereof, computerized data processing has been specifically excluded from the scope of BAS. Neither in the show cause notice nor in the impugned order, is there any allegation or finding that the activity undertaken by the appellant is not computerized data processing. If that be so, the question of levy of service tax on the activity undertaken by the appellant, which is nothing but computerized data processing cannot come within the scope of BAS and hence the entire demand is unsustainable.

The appellant further points out that w.e.f 01/05/2006 when ‘Business Support Service' was brought under tax net, accounting and processing of transactions and other transaction processing have been specifically included under ‘Business Support Services' (BSS) and explanation to BAS has also been modified so as to exclude computerized data processing services from the said explanation for the reason that the same is included under BSS.

The appellant also submits that in the instant case demand is restricted to the period from July 2003 to March, 2004 and there has been no demand for the subsequent period on the very same transaction undertaken by the appellant which also goes to show that the department has accepted the transactions undertaken by the appellant for the subsequent periods under BSS. If that be so, question of classification of the activity of the appellant under BAS would not arise at all.

The appellant relies on the decision of the Bombay High Court in the case of Indian National Ship owners' Association vs. Union of India 2009(14) STR 289 [ 2009-TIOL-150-HCMUM-ST ]wherein it was held that, when a tax is imposed under a new entry with effect from a particular date, it has to be presumed that for the period prior to that date, tax is not leviable unless the new entry has been carved out of earlier existing entry. In the present case, BSS came into force w.e.f 01/05/2006 and it has not been carved out of BAS and hence the demand for the period prior to 01/05/2006 is not sustainable.

Respondent’s Contention:- The Respondent reiterates the findings of the adjudicating authority. It is his submission that the conclusion of the Commissioner that the appellant was rendering service incidental or ancillary to customer care service by the bank to their customers is a plausible interpretation and, therefore, sustainable in law. Therefore, he prays for putting the appellant to terms.

Reasoning of Judgment:- The Tribunal heard both the parties and carefully considered the rival submissions.

The Tribunal finds that the activity undertaken by the appellant in the instant case is, processing of the transactions of their client electronically. In other words, they were undertaking computerized data processing for their client using the computer systems of the client and the clients are located not only in India but all over the world. It is also a fact that the appellant is not interacting with the bank's customers for collection of any data. The data already collected by the bank in their various branches are electronically processed by the appellant. In other words, the appellant is undertaking back-office operations for the client. The Citi Bank group has entrusted the processing of banking transactions electronically to the appellant. Since computerized data processing is specifically excluded from the scope of BAS as per explanation thereof, the question of confirmation of demand under BAS prima facie does not arise. Secondly, it is seen that, bulk of data processing is done for the bank's branches situated abroad. If that be so, the activity undertaken by the appellant would amount to export of service and on that account also no service tax would be payable by the appellant. Thus, we are of the view that the appellant has made out a strong prima facie case in their favour for grant of stay against the impugned order. Accordingly, we grant unconditional waiver from pre-deposit of the dues adjudged against the appellant in the impugned order and stay recovery thereof during the pendency of the appeal.

Decision:- Pre-deposit waived.

Comment:- The crux of this case is that when computerized data processing is specifically excluded from scope of BAS, the question of confirmation of demand under BAS prima facie does not arise and also, bulk of data processing is done for party which is situated abroad, which would as it is amount to export of service and so no service tax would be payable.

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PJ/Case law/2012-13-1554

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