CBEC wants to tax maintenance or repair or servicing of computer software
Board had issued an alarmingly logical circular in 2003 - Circular No. 70/19/2003-S.T., dated 17-12-2003. Board had noted that
• repair is not of tangible goods but that of intangible program/software which is in installed condition and thus the maintenance and repair of software is not maintenance and repair of ‘goods’
• Further an exemption has been granted to maintenance or repair services in relation to computer, computer systems and computer peripherals vide Notification No. 20/2003-S.T., dated 21-8-2003
• As such computer software would form a part of computer systems would be covered under this notification
• Under the category of ‘consulting engineer’ vide Notification No. 4/99-S.T., dated 28-2-99 taxable service provided to any person by a consulting engineer in relation to computer software is exempted.
• The definition of “Business Auxiliary Service” also specifically provides that; inter alia, maintaining of computer software is covered in the Taxable service, which is excluded from the scope of business auxiliary service.
• It is to clarify that maintenance of Software is not chargeable to Service Tax.
Interestingly the above referred notifications – 20/2003 and 4/99 were rescinded on 9.7.2004 and 10.9.2004. Then what happened? In an interesting article COMPUTER SOFTWARE SERVICE NOT TAXABLE EVEN AFTER WITHDRAWAL OF EXEMPTION!
Which we carried immediately after the 2004 Budget, Mr. R S Sharma, our Senior Editor said,
“JUDGING the impact of a Notification is not everybody’s cup of tea. What looks to everybody, including TRU as “Withdrawal of Exemption to Engineering Consultancy Services in relation to computer software” by rescinding of exemption Notification 4/99-ST dated 28.02.1999; does not really make the said service provided by a Consulting Engineer liable to service tax.”
It was pointed out that the withdrawal of the exemption notification does not really make the service taxable. With or without an exemption maintenance and repair would not have been taxable as Board rightly said that software was not tangible goods and so not covered under repair of goods. Then came the famous judgement of the Supreme Court in Tata Consultancy case where it was held that software was goods. The TCS judgement came in November 2004 and the Government has reacted – now after ten months.
The Board proposes to issue a circular to the effect that in view of the TCS judgement,
It is therefore clarified that maintenance or repair or servicing of all computer software is taxable under section 65
And the Board proposes to supersede all previous instructions on the subject. In order to avoid silly litigation, the Board should clarify that this circular has only prospective effect. Otherwise overactive officers are sure to shoot off Show Cause Notices.