MAINTENANCE OR REPAIR SERVICES
Maintenance
or Repair Services are brought under the Service Tax net by the Finance Act,
2003, w.e.f. 1-7-2003 vide Notification No. 7/2003, dated 20-62003.
The services shall be taxed, if provided by any person.
Rate of Service Tax: The rate
of service tax is specified in section 66 of the Act. The Finance (No. 2) Act,
2004 has substituted the charging section 66, and the rate of service tax is
enhanced from 8% to 10% ad valorem. The increase in tax rate has come into
force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004.
Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also
levied an education cess @ 2 % of the service tax. The cess paid on inputs
services shall be available as credit for payment of cess on output services.
For further discussion in this regard, refer to -'Payment of Service
Tax'.
'Maintenance or Repair' Services'
The
definition of 'maintenance or repair' has been given under clause (64) of
section 65. That is:
“maintenance
or repair" means any service provided by
(i) any person under a maintenance contract
or agreement, or
(ii) a manufacturer or any person authorised
by him,
in
relation to maintenance or repair or servicing of any goods or equipment,
excluding motor vehicle".
It is
quite common to have annual maintenance contract for the repair and maintenance
of goods and equipments like annual maintenance contract for computer, water
purifier, fax, EPABX, etc. There are many companies, individuals and firms who
undertake the contract for the repair and maintenance. A manufacturer or any
other person authorised by such manufacturer also provides facilities for
annual maintenance or repair of goods or equipments. The service is taxable for
maintenance or repair or servicing of any goods or equipment excluding motor
vehicle.
(1) Service rendered by any person covered when rendered under maintenance contract or agreement
The
definition of maintenance or repair is wide enough to include within its ambit
every person who undertakes maintenance or repair or servicing of any goods or
equipment (excluding motor vehicle) under maintenance contract or agreement
like AMC. The Hon'ble Finance Minister in the Parliament, addressing the
concerns of Members of Parliament on keeping small fry out of the net, said
that tax would be decided by annual turnover levels and specific services. It
was no body's intention to make the plumber, carpenter or electrician liable
(Source: The Times of India dated 9-5-2003). The term ‘maintenance'
refers to continuous support to keep something in working order or in
existence. Therefore, services in relation to 'maintenance' or 'repair' or
‘servicing' of any 'goods' or 'equipment' provided by any person shall be
taxable only if it is provided under maintenance contract/ agreement that
signify that service would be taxable if provided only on continuing basis for
a certain stipulated period covered under the contract, in other words, one
time repair is not covered, but contract to upkeep an equipment is covered
under the service tax,
(2) Service rendered by manufacturer or any person authorized by him covered even when service rendered without any maintenance contract or agreement
As per the
definition, maintenance or repair services provided by 'a manufacturer or 'any
person authorized by him' also covered under the service tax net but services
provided by them is not restricted to only annual maintenance contract (AMC)
but even a one time repair/service is also covered within the service tax net.
Therefore, strictly speaking, every person authorized by a manufacturer
undertaking maintenance or repair or servicing shall be covered within the
ambit of this taxable service even if such authorized person is not rendering
the service under a maintenance contract or he repairs, maintains or service
the goods/equipment manufactured by the manufacturer who authorized him or
manufactured by any other manufacturer. In fact, the indefinite article 'a' has
been used before the expression 'manufacturer', which is indicative of the
intention of the legislature Ishar Alloys Limited v Jayaswals Neco Limited
(2001) (2) SCALE 173.
The
definition of taxable service provided by any person has been given under sub-clause
(zzg) of clause (105) of section 65. That is:
“any
service provided "to a customer, by any person in relation to maintenance
or repair".
(1) Service rendered under contract is
taxable
In response to question no. 2.4 of the 'Frequently asked questions on Service Tax' issued in October 2003 - Whether maintenance and repair provided without any contract is taxable?, the Central Board of Excise and Customs has answered that "the maintenance or repair service undertaken under a maintenance contract or agreement is only chargeable to service tax". The author is of the view that this is not the correct position of law, the words "maintenance contract or agreement" appeared in the definition only when service is rendered by 'any person', whereas there is no such requirement when service is rendered by a manufacturer or any person authorized by him, therefore, as discussed earlier, maintenance or repair service undertaken without any maintenance contract or agreement by a manufacturer or any person authorized by him is also covered under the service tax net.
(2) Management or operation of lift or
equipment is taxable service
The
service tax under this category of taxable service is on 'maintenance' or
‘repair' or 'servicing' of any goods or equipment (excluding motor vehicle),
however, it does not include the service of operation of any equipment. As per
dictionary meaning, 'maintenance' refers to continuous support to keep
something in working order or in existence, 'repair' means put into good
condition after damage or wear, 'servicing' refers to maintenance and repair of
machine. The word 'management' here
only means to have control over equipments and the word 'operation'
refers to make efforts so that thing should act and in right way/manner or
direction. Therefore, putting manpower for the ‘management' or 'operation' of
any goods or equipments like elevators, DG set etc., is not a taxable service.
(3) Contract for maintenance of a building is
taxable service
No,
maintenance or repair contracts only in relation to goods or equipment have
been brought under the service tax net, there is no tax on the contract for the
maintenance of immovable property, therefore, there shall not be any service
tax under this category of taxable service for the contract of maintenance of a
building. In response to question no. 2.5 of the 'Frequently asked questions on
Service Tax' issued in October 2003 - Whether Annual Maintenance
Contracts (AMC) for maintenance of roads are excluded from service tax?, the
Central Board of Excise and Customs has answered that "as roads are
neither goods nor equipments, the AMC for roads would not be covered under
service tax".
It may be
noted that when a person entered into a contract for building maintenance, he
may also undertake to provide various service like maintenance of equipments
installed in the building, which is a taxable service and the onus will be on
the service provider to vivisect the charges into taxable and non-taxable
service.
(4) Maintenance of Computer Software is a
taxable service
In a point
raised before the Government regarding taxability of maintenance of Computer
Software, the Government in its Circular No. 70/19/2003-ST, dated 17-12-2003
[F. No. 256/9/2003-CX-4] (Appended as annexure III) has clarified
that "maintenance of Software is not chargeable to Service Tax". It
may be noted that in the said Circular, on the one hand Government clarified
that "In the instant case 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"', on the other hand, it is stated that "as such computer
software would form a part of computer systems" it would be covered under
the exemption Notification No. 20/2003 (since rescinded, as discussed in point
6). If the software is not 'goods', then it will not be covered in this taxable
service, then there is no question of seeking exemption as referred in the
aforesaid clarification. In the said Circular, it is also stated that service in
relation to computer software is exempted from service tax under the category
of 'consulting engineer' (for detail refer to 'Consulting Engineer Service')
and maintenance of Computer Software is excluded from 'Business Auxiliary
Service' as part of 'information technology service' (for detail refer to
'Business Auxiliary Service'). The Government in the said Circular stated that
"taking the above into consideration, it is to clarify that maintenance of
Software is not chargeable to Service Tax".
It may be
noted that the Finance Act, 2003, w.e.f. 14-5-2003 has introduced a
new section 65A to provide the manner of determination of classification of
taxable services, which has been discussed in detail in the 'Classification of
Services'. Therefore, now, determination of classification of taxable service
shall be made according to the manner given in the provision of
section 65A and tax shall be paid according to that category of taxable service. The author is of the view that in the aforesaid clarification, the Government has not considered the provisions of section 65A. It appears that Government, in view of the provisions of various taxable service and exemptions under these services has clarified that maintenance of software is not chargeable to service tax, ignoring the fact, maintenance of software falls under which category of taxable service. In view of the author, it is mandatory to determine the category of taxable service according to the principles laid down in section 65A, onAa's no option to categorize the taxable service provided by him according to his choice to take the benefit of exemption Notification.
Now, the
Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has made many changes
in the provisions of service tax, in the consulting engineer service, services
rendered by consulting engineer in the discipline of computer hardware and
software engineering has been excluded from the scope of consulting engineer
service. Further, the Government, w.e.f. 9-7-2004, has also
withdrawn the exemption in respect of maintenance or repair service in relation
to computers, computer systems or computer peripherals. Therefore, the
aforesaid clarification, which apparently appeared to be illogical, now, with
the change in the law has become completely irrelevant.
The author is also of the view that exclusion of maintaining of computer software from the category of Business Auxiliary Service as part of 'information technology service' does not mean that such service is not chargeable to service tax under any other category of taxable service under the provisions of service tax, it only signifies that such service is not included in the category of 'Business Auxiliary Services'. Therefore, it is again emphasized that to avail exemption or determine the taxability under service tax due regard should be given to the provisions of determination of classification of taxable services given in section 65A.
The author
is also of the view that it is not correct to hold that merely because software
is intangible, therefore, maintenance and repair of software is not maintenance
and repair of 'goods"'. It may be noted that in the case of Tata
Consultancy Services v State of A.P. (1997) 105 STC 421 (AP) it was held that
branded computer software is goods. Further, for the purpose of service tax
"Goods has the meaning assigned to it in clause (7) of section 2 of the
Sale of Goods Act, 1930" [clause (50) of section 651. As per clause (7) of
section 2 of Sale of Goods Act, 1930, "Goods means every kind of movable
property other than actionable claims and money, and includes stock and shares,
growing crops, grass and things attached to or forming part of the land which
are agreed to be severed before sale or under the contract Of sale". In
the case of Commissioner of Sales Tax v M.P. Electricity Board AIR 1970 SC 372,
the Supreme Court held that even electric energy is not tangible or cannot be
touched or moved but it is covered by the definition of 'goods'. In the case of
PSI Data System Limited v Collector pf Central Excise 1997 (89) ELT 3 (SC) it
was held that software are distinct and separate items and are not parts of
computer even if they are sold along with the computer. However, in the case of
CCE, Pondicherrry v Acer India Limited 2004 (166) ELT 21 (SC), the Supreme
Court had dissented to its earlier judgment and referred the matter to the
large bench for appropriate order.
(5) 'Contract for maintenance or repair entered into prior to 1-7-2003 are chargeable to service tax
No. The
question was raised before the Government that where the contract for
maintenance or repair was executed prior to imposition of levy i.e. prior to 1-7-2003
but services are rendered, either partly or wholly, after the imposition to
levy i.e. on or after 1-7-2003, for instance, if the contract is
executed for one year on 1 April, 2003 for Rs. 5000.00, against which service
shall be rendered till 31st March, 2004, in that case, what is the position and
liability under service tax? In this case the Government has issued the
exemption Notification No. 11/2003, dated 20-6-2003 (appended as
Annexure II) and exempted all such contracts entered into prior to 1-7-2003
provided bill is raised and payment is also received both prior to 1-7-2003,
further detail have been given at the end.
(6) Maintenance or repair of ATMs is a
taxable services
Yes. In a
point raised before the Government - whether service tax will be leviable
in respect of maintenance & repair of ATMs?, the Government in its Circular
No. 74/4/2004-ST, dated 23rd January, 2004 (appended as Annexure VI) has
clarified that maintenance and repair of Automatic Teller Machines (ATMs) are
liable to service tax.
(7) Payment received after 1-7-2003 for the contract entered prior to 1-7-2003 is chargeable to service tax
Yes. A
question was raised before the Government when the amount in respect of
contract entered into prior to imposition of levy i.e. prior to 1-7-2003
how the service tax has to be charged when amount is paid at different stages?
The Government in its Circular No. 59/8/2003, dated 20-6-2003 (appended
as Annexure 1) has clarified, "For such contracts, all subsequent payments
or payments made against invoice issued subsequent to 1st July, 2003 will be
chargeable to service tax" The Government in its Circular No. 62/11/2003,
dated 21st August, 2003 (appended as Annexure IV), has clarified that "any
maintenance or repair service rendered prior to 1-7-2003 will not
be taxable, irrespective of when the bills are raised or payments are
made". Therefore, if the contract is entered into prior to 1-7-2003
but service is rendered on or after 1-7-2003 then service tax will
be leviable on such service if bill are raised or payment is received on or
after 1-7-2003 but no service tax will be leviable on the part of
service under that contract which is rendered prior to 1-7-2003
irrespective of when the bills are raised or payments are made.
(8) Services rendered prior to 1-7-2003 for which the bill is raised or payment is made after 1-7-2003 is chargeable to service tax
No. In a
point raised before the Government - whether service tax is chargeable in
case where services are rendered prior to the date of imposition of levy but
bill is raised or payment is received after the date of imposition of levy, the
Government in its Circular No. 62/11/2003, dated 21st August 2003 (appended as
Annexure IV), has clarified that "it is a basic principle that no tax can
be charged except under the authority of law. Thus if the levy of service tax
on a particular service comes into force on a given date, that service will not
be taxable if rendered before that date". It is further clarified that the
levy of service tax on "Maintenance or Repair Service" has come into
force on 1-7-2003. Accordingly any maintenance or repair service
rendered prior to 1-7-2003 will not be taxable, irrespective of
when the bills are raised or payments are made.
Service
tax is liable to be paid when maintenance or repair services are rendered by
any person.
(1) 'any person'
The term
'person' has not been defined in the context of service tax. But, the term
'person' has been defined as "person shall include any company or
association or body of individual, whether incorporated or not" [clause
(42) of section 3 of General Clauses Act, 1897]. In the present context, person
who provides services in relation to maintenance or repair of any goods or
equipments can be an individual or a well organized sole proprietorship/
partnership firm or a public/private limited company.
As
mentioned at the outset under this category of taxable service, even plumber,
carpenter or electrician etc, are also covered.
(2) Sub-contractor is liable to pay
service tax
No. In
response to question no. 2.3 under 'Maintenance and Repair Service' of the
'Frequently asked questions on Service Tax' issued in October 2003 - If
there is a total sub-contract of the service, whether sub-contractor
is supposed to take out a registration and discharge the tax liability?, the
Central Board of Excise and Customs has answered that "the sub-contractor
need not take a registration under Service Tax. In all such cases, Service Tax
is to be paid by main service provider".
(3) Dealer would be liable to pay service tax even if he getting the service done from others
Yes. In a
representation made by All India Air Conditioning and Refrigeration
Association, the Government in its reply dated 19-3-2004 (F. No.
256/5/2003-CX-4) has stated that "if the dealers are the
ultimate service providers then they are liable for payment of service tax
because the service tax liability is qua the service rendered to the receiver
of a service from a service provider and not on account of who physically or
mechanically executes the job. The intermediary dealers who are providing any
service in relation to maintenance and repair service are, therefore, liable to
pay service tax. Any service tax charged and paid by the repairer/ manufacturer
in relation to the service provided would be available as credit to the dealer
who finally renders the service."
Maintenance or repair services are liable to be charged to
service tax
Maintenance
or repair services are liable to be charged to service tax when provided to
§
a customer;
§
in relation to maintenance or repair or servicing
§
it should be of any goods or equipment excluding motor
vehicle.
(1) customer
Services
are liable to be charged to tax only when it is provided to 'customer'. The
word 'customer' as per the dictionary meaning is "one accustomed to
frequent a certain place of business: a buyer: a person" (reference the
Chambers English Dictionary) or "a person buying goods or services from a
shop, etc," (reference the Oxford Mini Dictionary). Therefore, the
'customer' is necessarily an external person who purchases a commodity or
service from a shop or business concern for consideration. However, it is not
necessary that customer should be a regular customer for services of
maintenance or repair.
(2) 'Goods'
"Goods
has the meaning assigned to it in clause (7) of section 2 of the Sale of Goods
Act,
1930" [clause (50) of section 65].
As
per clause (7) of section 2 of Sale of Goods Act, 1930:
"Goods
are defined as every kind of movable property other than actionable claims and
money, and includes stock and shares, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before sale or
under the contract Of sale".
(3) 'equipment'
The words
'equipment' will encompass within the definition of term 'goods' as discussed
above, as the equipment is also a movable property.
Value of taxable services for charging tax
The value
of taxable services in relation to maintenance or repair services provided by
any person shall be the gross amount charged by such person from a customer for
providing such services [section 67]. The words 'gross amount' is used in
contrast to the 'net amount', therefore, no abatement shall be allowed in
respect of administrative/ office expenses incurred in respect of such
services.
(1) Cost of parts or other material is part
of taxable value
No, as per clause (vi) to Explanation 1 to section 67, for the removal of doubt, it is declared that the value of taxable service does not include "the cost of parts or other material, if any, sold to the customer during course of providing maintenance or repair service".
The
Government in its Circular F. No. B. 11/1/2001-TRU, dated 9th July, 2001
(appended as Annexure I in the
'authorized service station') has clarified that to claim the benefit of
the cost of parts or accessories, such cost should be shown separately in the
bill/invoice, the said clarification shall be applicable in this category of
service also.
Further,
the Government has issued Notification No. 12/2003-ST, dated 20-6-2003,
w.e.f. 1-7-2003 (appended as Annexure IV in the 'Payment of Service
Tax') by giving a general exemption for all taxable service from the levy of
service tax of the value of goods and materials sold by the service provider.
While explaining the scope of exemption under aforesaid Notification No.
12/2002, the Government in para 2.9.1 of its Circular No. 59/8/2003, dated 20-6-2003
(appended as Annexure V in the 'Payment
of Service Tax') has also clarified, "This exemption would be available
only in cases where the sale of such goods is evidenced and the sale value is
quantified and shown separately in the invoice".
(2) Reimbursement from the manufacturer shall be included in the value of taxable service
It may be
noted that in respect of services rendered by the 'authorized service station',
it is provided in clause (f) of Explanation to section 67 that value of taxable
service includes "the reimbursement received by the authorised service
station from manufacturer for carrying out any service of any motor car, light
motor vehicle or two wheeled motor vehicle manufactured by such manufacturer".
However, in the Explanation to section 67, similar provision has not been made
for 'maintenance or repair services'. Therefore, the reimbursement from the
manufacturer by the person providing maintenance or repair or servicing of any
goods or equipment should not be included in the value of taxable service.
However,
the Government while explaining the scope of this taxable services, in its
Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I)
has clarified, "for the services provided during the warranty period by
the dealer or any other authorized person, service tax would also be leviable
on any amount received by such dealer or such other authorized person from
manufacturer of such goods".
In view of
the author, the Government by above clarification has enlarged the scope of
value of taxable service under section 67, whereas, as mentioned above, the
same has not been provided for this taxable service, by the legislature.
Exempted maintenance or repair services
(A)
Exemption for the contract entered into prior to 1st July, 2003 for subsequent
period: The Government, w.e.f. 1-7-2003, has exempted
from whole of service tax that portion of the taxable services provided to a
customer by any person in relation to maintenance or repair, under a maintenance
contract or agreement which was entered into prior to the 1st day of July,
2003, against which service shall be provided on or after 1-7-2003
vide Notification No. 11/2003, dated 20-6-2003 (appended as
Annexure II, the exemption shall be available if following conditions are
fulfilled, viz.
(a) the bill or invoice for
the said portion of taxable services is raised prior to the 1st day of July,
2003; and
(b) the value of the said
portion of taxable services is received from the customer prior to the 1st day
of July, 2003.
The
purpose of granting the exemption under the aforesaid Notification No. 11/2003
is to give relief to all such contracts which were entered into prior to levy
coming into force i.e. 1-7-2003 but contract period is one year or
more, in such a situation once the bill is raised period to 1-7-2003
and fee is received then for the future service rendered against such contract
shall not be taxed. However, the Government in its Circular No. 59/8/2003,
dated 20-6-2003 (appended as Annexure 1) has clarified, "For
such contracts, all subsequent payments or payments made against invoice issued
subsequent to the 1st July, 2003 will be chargeable to service tax. Similar
will be the situation for payments made for continuing services". The
Government in its Circular No. 62/11/2003, dated 21st August, 2003 (appended as
Annexure IV), has clarified that "any maintenance or repair service
rendered prior to 1-7-2003 will not be taxable, irrespective of
when the bills are raised or payments are made". Therefore, if the
contract is entered into prior to 1-7-2003 but service is rendered
on or after 1-7-2003 then service tax will be leviable on such
service if bill are raised or payment is received on or after 1-7-2003
but no service tax will be leviable on the part of service under that contract
which is rendered prior to 1-7-2003 irrespective of when the bills
are raised or payments are made.
(B) Maintenance or repair of computers, computer
systems or computer peripherals. -The Government, w.e.f. 21st
August, 2003, had exempted the taxable service provided to a customer by any
person in relation to maintenance or repair of computers, computer systems, or
computer peripherals, from the whole of service tax vide Notification No.
20/2003-ST, dated 21st August, 2003 (appended as annexure V). Now, w.e.f.
9-7-2004, the Government has withdrawn the aforesaid exemption -
vide Notification No. 7/2004-ST, dated 9th July, 2004.
(1) Maintenance or repair of ATMs is covered under exemption Notification No. 20/2003
No. In a
question raised before the Government - whether maintenance and repair of
ATMs is covered under the exemption Notification No. 20/2003 ST, dated 21-8-2003,
the Central Board of Excise and Customs in its Circular No.74/4/2004-ST,
dated 23rd January, 2004 (appended as Annexure VI) has clarified that
"Automatic Teller Machine (ATM) is not a 'Computer', 'Computer System' or
'Computer Peripherals' and their maintenance and repair does not fall under
exemption Notification No. 20/2003-ST, dated 21st August, 2003".
Computers are essentially data processing machines and their function is to
process analog or digital clat. ATM may involve processing of data but their
principal function is not processing of data per se, but using such processed
data for performing independent functions. ATMs are not computers but are
computerized machines.
(C) General Exemption: The
Government has granted exemption from the whole of Service Tax in respect of
all taxable services, for services provided to United Nations or an International
Organisation. Similarly, the exemption, subject to certain conditions, has also
been granted for taxable service provided to a developer or units of Special
Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the
exemption, as an interim measure, from the whole of service tax when payment is
received in convertible foreign exchange for the taxable services rendered in
India provided it was not repatriated from or sent outside India, such
exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may
note that detailed discussion about aforesaid exemptions along with relevant
notifications have been given in the 'Exemption from whole of Service Tax -
Some Cases'.
N.B. The
readers may note that provisions, procedures and other related discussion
related to registration, payments of service tax, filing of return, interest
and penalty, assessment procedure, appeal, refund of tax, etc., which are same,
as applicable in respect of other taxable services, have been given in separate.
Clarification on the scope of the term
for levy of service tax
[Circular
No. 59/8/2003 [F. No. B3/7/2003-TRU], dated 20-6-2003,
relevant extracts]
2.3 Maintenance and repair
services
2.3.1 Maintenance contracts entered into before 1st July 2003
There are
cases where maintenance contracts are entered into for a period of more than
one year. Vide Notification No. 11/2003-Service Tax, dated 20th June,
2003 for maintenance contracts entered into prior to 1st July, 2003, exemption
has been provided to that part of the value of the service for which
bill/invoices have been raised and the amount has actually been received prior
to the 1st July, 2003. For such contracts, all subsequent payments or payments
made against invoice issued subsequent to the 1st July 2003 will be chargeable
to service tax. Similar will be situation for payments made for continuing
services.
2.3.2 Certain doubts have been
raised in case of maintenance and repair services as to whether service tax on
maintenance and repair would be charged in cases where during the guarantee
period, the services are provided to the buyer of the goods while the payments
for the same are received from the supplier of the goods. In this regard it is
clarified that irrespective of the fact that the receiver of the service is
different from the person making payments for such services, the service tax is
leviable on the services provided towards opt maintenance and repair.
Therefore, for the services provided during the warranty period by the dealer
or any other authorized person, service tax would also be leviable on any
amount received by such dealer or such other authorized person from
manufacturer of such goods.
Exemption from service tax certain
maintenance contracts
In
exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of
1994), the Central Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts that portion of the taxable services
provided to a customer by any person in relation to maintenance or repair,
under a maintenance contract or agreement in relation to maintenance or repair
of any goods or equipment excluding motor vehicle, which was entered into prior
to the 1st day of July, 2003, from the service tax leviable thereon under sub-section
(2) of section (66) of the said Act, if
(a) the bill or invoice for
the said portion of taxable services is raised prior to the 1st day of July, 2003;
and
(b) the value of the said
portion of taxable services is received from the customer prior the 1st day of
July, 2003
2. This notification shall come into force on the 1st day of
July, 2003.
Clarification on the taxability of
maintenance of Computer Software - regarding
An issue
has been raised whether the organisations who are engaged in design,
development are maintenance of Software and enter into Annual Maintenance
contracts for maintenance of their software, are exempt from Service Tax or
not.
2. 'Maintenance or repair'
means any service provided by (i) any person under a maintenance contract or
agreement or (ii) a manufacturer or any person authorised by him in relation to
maintenance or repair or servicing of any goods or equipment. In the instant
case 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-ST, 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-ST, dated 28-2-1999 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 service, which is excluded from the scope of business
auxiliary service.
3. Taking the above into
consideration, it is to clarify that maintenance of Software is not chargeable
to Service Tax.
4. Suitable Trade Notice may be issued for the benefit of the
trade.
Miscellaneous issues relating to
maintenance or repair services
3.1 Maintenance or repair
services rendered under contracts entered into prior to 1-7-2003
are exempted from service tax if the bills are raised, and payment also made,
prior to 1-7-2003 (Notification No. 11/2003-ST, dated 20-62003).
In this context a doubt has been raised as to whether service tax would still
be chargeable in cases where though the bills are raised, or payment made,
after 1-7-2003, but the service was rendered prior to 1-7-2003.
3.2 It is a basic principle
that no tax can be charged except under authority of law. Thus, if the levy of
service tax on a particular service comes into force on a given date, that
service will not be taxable if rendered before that date. The levy of service
tax on "Maintenance or repair service" has come into force , on 1-7-2003.
Accordingly any,. maintenance or repair service rendered prior to 1-7-2003
will not be taxable' 'irrespective of when the bills are raised or payment made.
This will apply to other services as well which were rendered prior to the
imposition of service tax on them.
3.3 Notification No. 20/2003-Service
Tax, dated 21-8-2003 has been issued which exempts services in
relation to maintenance or repair of computers, computer systems and computer
peripherals.
Exemption of service tax on services
provided to a customer by any person in relation to maintenance or repair of
computers, computer systems or computer peripherals
Notification
No. 20/2003-ST [F. No. B3/7/2003-TRU], dated 21-8-2003,
rescinded by Notification No. 7/2004-ST [F. No. 334/31/2004-TRU],
dated 9-7-2004
In
exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of
1994), the Central Government, being satisfied that it is necessary in the
public interest so to do, hereby exempts the taxable service provided to a
customer by any person in relation to maintenance or repair of computers,
computer systems or computer peripherals, from the service tax leviable thereon
under section 66 of the said Act.
Clarification for the maintenance and
repair services for Automated Teller Machines (ATMs) - Liability of
service tax - Regarding
The Board has
received representations seeking clarification with regard to leviability of
Service Tax in respect of maintenance & repair of ATMs in terms of
Notification No. 20/2003-ST, dated 21-8-2003.
2. The matter has been
examined in the Board. It is clarified that computers are essentially data
processing machines and their function is to process analog or digital data.
There may be machines, which use such processed data to perform certain
specified functions. These machines may involve processing of data but their
principal function is not processing of data per se, but using such processed
data for performing independent functions. These are not 'computes, but are
computerised machines. ATM is one such machine. For the purposes of Customs
Tariff also, whereas computer falls under heading 84.73, ATMs fall under sub-heading
8472.90.
3. In
view of the above stated facts, the Board has taken a decision that Automatic
Teller Machine is not a 'Computer', 'Computer System' or 'Computer
Peripherals' (all of which perform or aid primarily in, data processing per se)
and thus their maintenance and repair does not fall under exemption
Notification No. 20/2003-ST, dated 21st August, 2003 0 Accordingly such
services are liable for service tax