Central Board of Extreme Confusion – CBEC
Service Tax on software repairs – DGST is back in action
Consultants all over the country should at least send “thank you” notes if not the best sweets to the DG, Service Tax for he is determined to keep them richly in business! A little recap
Once upon a time Board vide Circular No. 70/19/2003-S.T., dated 17-12-2003 emphatically stated that “It is to clarify that maintenance of Software is not chargeable to Service Tax.” The logic was that software was not “goods” Then came the TCS judgement and an alert Board revised its view and held that maintenance or repair or servicing of all computer software is taxable under section 65 in Circular No. dated 7 th October 2005. While reporting this, DDT had suggested, 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. But Board has not given any such clarification. Let us hope the department will not initiate action, especially for the last five years alleging suppression that the assessees had suppressed the fact that Board is going to issue the clarification - -10 10 2005
Board, as usual, has been silent, but that is not a virtue that the DG, Service Tax is famous for. He has indeed issued a clarification. In his letter F.No. V/DGST/21/M&R/Misc-01/2005 dated 13th October, 2005, the DG says,
It is, therefore, necessary to immediately conduct survey and identify all such service providers especially the organisations which are engaged in design, development and maintenance of software and/or enter into Annual Maintenance Contracts for maintenance of software and bring them into the tax net. Service Tax on 'Maintenance and Repair services' was levied w.e.f. 01.07.2003 onwards and it includes any person (or his authorized agent,) who provides maintenance or repair including reconditioning, restoration or servicing of software. The Service Tax, due from all such service providers, may be recovered forthwith
The details of Service Tax involved/recovered from all such 'service providers may be communicated to the Member (Service Tax) and the undersigned on immediate priority basis.
We will appreciate if you personally monitor this exercise as huge revenue is involved and we are also getting hit by time bar clause on a daily basis.
Board had clarified on 7th October 2005 that repair of software is taxable and within a week, DG, Service Tax has clarified that the Service Tax should be collected from 1.7.2003 and we are also getting hit by time bar clause on a daily basis. What does he mean by this? Is he not aware of the limitation under the Act? Demand is to be made within one year. If it is to be realized from 1.7.2003, it is already time barred, unless you invoke the larger period of five years and if you want to invoke that, you have time till July 2008. Then what is this daily basis? And how does he want to recover this? By invoking suppression that the assessee with intent to evade tax did not foresee in 2003 that the Board is going to issue a circular in 2005 that this activity is taxable?
Today we are carrying a judgement of the Supreme Court which emphatically states that an amendment of the statute has only prospective effect. Can a circular have retrospective effect?
The DG wants details of tax collected on this to be informed to the Member and him. So obviously, he has the blessings of the Board for this missive. How on earth are they going to collect tax from 2003 and under what provisions?
If DG is confused, can Chief Commissioners be far behind? A day after the DG issued his letter, the Chief Commissioner, Hyderabad shot off a letter to his commissioners in C, No. IV /16/255/2005.-CC(HZ)Service Tax dated 14.10.2005 that,
In view of the Supreme Court's decision in the case of Tata Consultancy Services that branded software is goods, maintenance or repair of software IS chargeable to service tax under Section 65(105)(zzg) read with Section 65(64) of the Finance Act, 1994 with effect from 1.7.2003. However, in view of the exemption available vide Board's circular No.70/19/2003-ST dated 17.12. 2003 and Notification no.7/2004 dated 9.7.2004 ST dated 9.7.2004, demands Can be raised from 9. 7. 2004, the date on which Notification No.20/2003-ST dated 1.08.2003 was rescinded vide Notification No. 7/2004 dated 9.7.2004.
And the Hyderabad Chief Commissioner has also dutifully communicated the DG’s letter to the field. So the Hyderabad officers have two directions – one from the DG that Service Tax has to be recovered from 1.7.2003 and one from the Chief Commissioner that it has to be recovered from 9.7.2004 and both the worthies have ignored the fact that both the dates are hit by limitation.
What does a field officer do? Follow the directions of his Chief Commissioner? Or the directions of the DG communicated by the Chief Commissioner? A difficult situation indeed! And what should the assessee do? Go to that consultant who has sent that “thank you” note to the DG?
As such Board clarifications are creating enough confusion in the field. Should DGs and CCs add to it? Shouldn’t there be a centralised authority to confuse instead of so many authorities doing it? And does the poor Finance Minister know about this circus performed by his officers only to impress him? Do these senior officers ever bother about the kind of impression they are creating before the tax payers who actually pay for their salaries and enormous perks? What would be the image of the department when senior-most officers go round giving conflicting directions and all of them wrong? Does any one ever bother?