The adjudication in respect of Show Cause Notices was made by the Commissioner which was challenged before the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (CESTAT).
In the order of remand, CESTAT observed that it is not borne out from the impugned order of the Commissioner how service tax liability has been computed. The Tribunal further observed that it was necessary to go through the agreements entered into by the assessee with his clients, bills raised for services rendered, the goods supplied and the payments made towards the service tax liability. By the impugned judgment dated 18 September 2018, CESTAT held that the services subject matter of dispute were classifiable under the category of “Information Technology Software” with effect from 16 May 2008 and for the earlier period up to 15 May 2008, the same services were classifiable under the category of “Intellectual Property Service”.
In support of Civil Appeal No.4007 of 2019, learned ASG, Shri Mr N.Venkatraman submitted that though the first show cause notice dated 19 October 2009 has been issued demanding service tax under the category of “Management, Maintenance and Repairs”, the assessee was always aware that in fact the demand was covered under the category “Intellectual Property Service”. He submitted that in view of the availability of exemption, the finding of the CESTAT that the assessee was required to pay service tax and thereafter, SEZ developer or unit located in SEZ could have claimed the exemption by way of refund, is completely erroneous.
The learned counsel appearing for the assessee submitted that CESTAT committed an error in upholding the demand confirmed by the respondent for the period from 16 May 2008 on the sale of standardised software and resale of the hardware. The CESTAT found that the service of transfer of intellectual property rights was classifiable under the category of “Intellectual Property Service” till 16 May 2008 and was taxable in terms of Section 65(105)(zzr) of the Finance Act. Thus, prior to 16 May 2008, such service was classifiable under the category of “Intellectual Property Service” and with effect from 16 May 2008, it was classifiable under the category of ‘Information Technology Software”.
Elementary principles of natural justice required that the adjudication on the basis of show cause notice should be made only on the basis of classification stated in the show cause notice. As stated earlier, the other three show- cause notices mentioned the correct classification.
Also Read: https://newslaw.in/supreme-court/extension-of-benefit-of-doubt-in-criminal-convictions/
Sub-section (2) of Section 26 of SEZ Act provides that the Central Government may prescribe the manner in which and the terms and conditions subject to which exemptions shall be granted to a developer or entrepreneur covered by sub-section (1) of Section 26.
“In terms of Notification No 9/2009-ST granted exemption to the specific services supplied to SEZ subject to condition that person liable to pay service tax shall pay service tax as applicable on the specified services provided to the developer or units of SEZ and SEZ shall claim refund of service tax on the services provided to the developer of SEZ.
Since Commissioner has not considered the matter on this aspect the issue needs to be remanded back to him for consideration of the exemption in respect of services supplied to SEZ unit/developer.”
Therefore, we cannot find fault with the reasoning adopted by CESTAT.
Also Read: https://newslaw.in/supreme-court/vicarious-liability-under-section-34-of-ipc/
Civil appeal
Case Title: COMMISSIONER OF SERVICE TAX MUMBAI II Vs. M/S. 3I INFOTECH LTD. (2023 INSC 711)
Case Number: C.A. No.-004007 / 2019
