InService Tax Appeal No.42286 of 2013 -CESTAT- CESTAT (Chennai) classifies appellant company's data manipulationservices as 'Information Technology Software' under Section 65(53a) of the Finance Act; Service Tax liability only from 16.5.2008
MembersSulekha Beevi C.S. (Judicial) & M. Ajit Kumar (Technical) [01-08-2023]

Read Order: Intimate Fashions Pvt. Ltd v. Commissioner of GST & Central Excise

Chahat Varma

New Delhi, August8, 2023: The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal has ruled that services provided by Intimate Fashions Pvt. Ltd. (appellant), which involved data manipulation through a foreign-installed common server, accessed via private international leased lines and SAP software, are to classified as 'Information Technology Software' service under Section 65(53a) of the Finance Act, 1994. However, the bench clarified that the liability for service tax applied only from 16.5.2008, and was not applicable before that date.

The factual background of the case was that the appellant, was investigated by Central Excise officers for suspected non-payment of service tax on payments made to a foreign company. During the investigation, it was discovered that a common server was installed at the premises of M/s. Bodyline Private Limited, Sri Lanka (BPLSL), which the appellant accessed to retrieve data through private international lease lines using SAP software. The Revenue contended that these activities fell under the category of 'Computer Network Services' or 'Online Information and Database Access or Retrieval Service', subject to service tax under reverse charge mechanism. The appellant argued that certain activities should only be classified as 'Information Technology Services' introduced after 16.05.2008, and not liable for service tax prior to that date. However, the Revenue contended that the entire service activity, including server installation, SAP software implementation, and data manipulation through private international leased lines, should be considered as one service falling under 'Online Information and Data Access or Retrieval Service.' After adjudication, service tax of Rs. 83,41,013 was demanded from the appellant under the category of 'Online Information and Database Access or Retrieval Service'.

The bench observed that ‘Computer Network Services’ meant the inter connection of one or more computers and ‘Online Information and Data Base Access or Retrieval or both in Electronic form through Computer Network’ related to providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network. Whereas ‘Information Technology Software’ service covered the manipulation or interactivity provided to a user on any representation of instruction, data sound, or image including source code or object code by machines of a computer or an automatic data processing machine.

The bench noted that the appellant's activity primarily involved data manipulation rather than just connecting computers or accessing data. The use of SAP software facilitated various functions, including data entry, manipulation, and retrieval for accounting and other purposes. Consequently, the bench disagreed with the classification of the disputed service as a computer network service. Instead, it deemed the services appropriately classified as 'Information Technology Software services,' a category introduced from 16.5.2008 onwards.

Consequently, the bench concluded that services provided by the appellant, sourced from abroad and subject to duty under the reverse charge mechanism, were classified under 'Information technology software' service according to Section 65(53a) and constituted a taxable service under Section 65(105)(zzzze) of the Finance Act, 1994.