Services of upgradation of software post implementation of ERP not in the nature of maintenance or repair service. ‘Computers’ do not include software – service liable from 16/05/2008 as information technology software service.
Facts:
i. The Department contended that the services provided by the appellant for the period from July 2004 to January 2006 in relation to maintenance of software should be classified under “management, maintenance or repairs services”. However, the appellant claimed that the said services are classifiable as “information technology software services” which is introduced with effect from 16/05/2008.
ii. Appellant contended that repairs and maintenance of software services are specifically excluded from the definition of business auxiliary services and therefore, are not liable to service tax. They relied on a circular dated 17/12/2003 which clarified that maintenance of software was not chargeable to service tax. However, the Department claimed that circular dated 17/12/2003 was superseded by circular dated 07/10/2005 and therefore, the services of maintenance of software were chargeable to service tax.
iii. Department contended that software is considered as ‘goods’ by various courts and that though Notification No. 20/2003-ST dated 21/08/2003 had exempted maintenance or repairs of computers and its peripherals, Notification No. 7/2004-ST dated 09/07/2004 rescinded the said notification and therefore, such services are chargeable to service tax from 09/07/2004. The appellant argued that computers per se do not include software and therefore, the said notification did not apply to them. The appellant contended that service tax cannot be levied on activities which are specifically kept out of the purview of service tax and they explained that it provides computer software maintenance which can be categorised in following four streams as per the technical literature of special consultants and other sources: Corrective, adaptive, perfective and preventive.
These activities are in the nature of “ERP maintenance and upgradation activities”.
iv. The Department issued show cause notices for various periods including part of the period under dispute under “management consultant’s services”. The appellant challenged the notices on the ground of extended period of limitation as well as on the interpretation issue.
Held:
i. Variety of maintenance services were provided by the appellant post implementation of ERP. These services are mainly in relation to upgrading the software and enhancing ERP’s efficiency. “Maintenance” in relation to computer software is much wider than maintenance of any other goods or of a factual situation
ii. Though ‘software’ is considered as ‘goods’ by various courts, normally maintenance of goods would not result in upgradation of its value or functionality or efficiency to higher levels. Only “corrective maintenance” can be compared with maintenance of tangible goods.
iii. The case laws and circulars placed were in relation to computer software and the new levy with effect from 16/05/2008 is in relation to information technology software. Computer software and information technology software services are treated differently by the legislature which can be understood from section 65(64) of the Finance Act, 1994 which reads as under:
“management, maintenance or repair” means any service provided by —
(i) any person under a contract or an agreement or
(ii) a manufacturer or any person authorised by him, in relation to, —
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle
Explanation — For the removal of doubts, it is hereby declared that for the purposes of this clause, —
(a) ‘goods’ includes computer software;
(b) ‘properties’ includes information technology software” Therefore, maintenance of computer software is covered by clause
(c) whereas maintenance of information technology software is covered by clause
(b) above.
(iv) The activities of the appellant being well within the scope of “information technology software services”, appellant was not liable for service for the period under dispute.
