Advisory Support Service Relating To Software Falls Within Service By Software Engineer: CESTAT

The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) allowed the service tax exemption to Yamaha Motor's subsidiary and held that advisory support services relating to software clearly fall within the domain of the service provided by a software engineer.

The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that activities of the appellant rendering software development and other information technology services to Yamaha India are specifically made taxable under Section 65 (105) (zzzze) of the Finance Act, 1994, w.e.f. May 16, 2008, under the category of Information Technology Software Services. The appellant is registered under the provisions of service tax and regularly discharges service tax liability. But during the disputed period from October 1, 2002, to March 12, 2004, the activities of the appellant were not subject to service tax in view of the exemption notification as well as the Circular issued by the CBEC.

The appellant/assessee was a 100% subsidiary of Yamaha Motor India Pvt. Ltd. It was engaged in the business of rendering software development and other information technology services to Yamaha India.

The appellant has received a show cause notice in which it was alleged that the appellant's services to Yamaha India are taxable under the category of consulting engineer's service.

The appellant filed a detailed reply to the show cause notice and explained that its activities were exempted from tax through notification 04/1999-ST dated 28.02.1999, as these services are in relation to computer software.

After following due process, the Additional Commissioner of Service Tax, New Delhi, adjudicated the subject show cause notice and confirmed the demand as proposed in the show cause notice. The Additional Commissioner of Service Tax observed that the activities fall within the taxable category of consulting engineers' services. The Additional Commissioner has denied the benefit of the exemption. Notification No. 04/1999-ST dated 28.02.1999 on the ground that the appellant's activities are not predominantly in the nature of software development only. He has also imposed penalties as proposed in the show cause notice.

The appellant filed an appeal before the Commissioner of Central Excise (Appeals), who has rejected the appeal of the appellant and confirmed the demand for service tax on the ground that the activities of the appellant are not exclusively related to computer software service. The Commissioner (Appeals) has also confirmed the demand for interest and penalties.

The appellant contended that, as per CBEC Circular No. 70/19/2003-ST dated December 17, 2003, the taxable service provided to any person by a consulting engineer in relation to computer software is exempted, and therefore, activities relating to the maintenance of computer software are not taxable. The appellant provided the services in relation to computer software and is therefore exempt from service tax.

The CESTAT held that during the period in dispute, the activities of the appellant were exempted by Notification No. 04/1999 dated 28.02.1999 and Circular No. 70/19/2003-ST dated 17.12.2003. When the appellant is not liable to pay service tax, the question of demanding interest and imposing a penalty does not arise.

Counsel For Appellant: Tanuj Hazari

Counsel For Respondent: Raman Mittal

Case Title: Yamaha Motor Solutions India Pvt. Ltd. Versus CCE

Case No.: Service Tax Appeal No. 1717 Of 2011

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