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Software maintenance liable to Service tax with
effect from 1-6-2007 only and CBEC Circular dated 7-10-2005 holding
software to be goods and maintenance thereof liable to Service Tax prior
to 1-6-2007 is ultra vires Finance Act.
Facts:
The
Department had issued a Circular dated 17-12-2003 clarifying that
software services were out of the purview of Service tax and section
65(19) defining ‘Business Auxiliary Services’ specifically excluded
information technology services. However, the Supreme Court’s judgment
in case of Tata Consultancy Services v. State of Andhra Pradesh, (2005) 1
SCC 308; (2004) 178 ELT 22 considered canned software as ‘goods’.
Therefore, the Department issued another Circular dated 7-10-2005,
holding software to be ‘goods’ and maintenance thereof leviable to
Service tax.
The petitioners argued that the Circular dated
7-10-2005 was ultra vires section 83 of the Finance Act read with
section 37B of Central Excise Act and 65 (19) of the Finance Act.
The
Revenue contended that section 65(19) excluded only designing and
developing of computer software, and maintenance of software was not
excluded therefrom and the Circular only explained the scope of services
and interpretation of law and did not override the legal provisions.
Held:
The
definition of ‘Business Auxiliary Services’ excluded maintenance of
software specifically till introduction of the Finance Act, 2007. The
amendment made through the Finance Act, 2007 was not with retrospective
effect. Moreover, computer software was included in the definition of
‘goods’ only with effect from 1-6-2007 under the Finance Act. Therefore,
the Circular was held to be overriding the statutory provisions and
software maintenance was held to be liable to Service tax only with
effect from 1-6-2007.
