JUDGMENT :

K.R. SHRIRAM, J.

1. The appeal was admitted on 8th December 2015 and the following four questions of law were framed :

(1) Whether the agreement dated 1 January 2006 between the Appellant and M/s. QAD India Private Limited is a contract of services or a contract of supply and/or sale of software by the Appellant?

(2) Whether the Tribunal erred in not following the decision of the Hon'ble Karnataka Sales Tax Tribunal in the case of M/s. IBM India Pvt. Ltd. vs. State of Karnataka [2010 (ST1) GJX 0761 TKAR] and the judgment of the Hon'ble Karnataka High Court in the case of Saskan Communication Technologies Limited vs. Joint Commissioner of Commercial Taxes [2012 (ST2) GJX 0659 KAR] which directly and squarely apply to the facts and circumstances of the present case?

(3) Whether the Tribunal, being the last fact-finding authority, erred in not taking into account the Affidavit dated 18.12.2014 as relevant evidence of conduct of the parties to the Agreement dated 1.1.2006 and to determine the nature of the services and the work performed thereunder to arrive at the correct factual position of the activity performed by the Appellant?

(4) Whether the services provided by the Appellants to M/s. QAD India Private Limited under the Agreement dated 1 January 2006 for removing or fixing of bug/error within the basic software, which is in the nature of repair of the basic software, amounts to development/enhancement/customization of the existing software?

2. Appellant is engaged in providing services relating to repair and maintenance of software. Appellant holds Service Tax Registration bearing No.AAACO2461JST001. Appellant is also registered under the provisions of the Maharashtra Value Added Tax Act, 2002 (the MVAT Act) bearing TIN 27120364214V.

3. Appellant had executed an agreement with one QAD India Private Limited (QAD) to provide manpower to perform maintenance services as desired by QAD in relation to Enterprise Resource Planning (ERP) software called MFG/PRO. The agreement was for the period 1st January 2006 to 31st December 2006. The agreement provided the scope of work. Under the agreement, appellant was to provide to QAD a team of 9 employees to perform services at the rate of US $ 4200 per person per month.

4. QAD Inc., USA is a software development company and is the owner of the source code of ERP software MFG/PRO. The software is purchased by the users/customers directly from QAD Inc., USA. QAD has full control and maintains the core software and has outsourced only the bug fixing to appellant. Appellant’s employees work on the QAD servers located in USA through remote access as per the work statement. The employees of appellant assigned to QAD were performing services as per the instructions and under the supervision and control of QAD.

5. QAD has not delivered its software to appellant and only QAD possessed all rights of ownership in respect of MFG/PRO software. The software was supposed to function in a pre-determined manner. In case the software did not provide the desired results (in case of a bug/error) appellant would resolve only the error/bug.

6. MVAT authorities conducted a business audit in the year 2009 for the period 2005-2006 to 2007-2008. During the course of audit, to queries raised, appellant explained to the MVAT authorities that appellant was only providing manpower services in the nature of work on hire basis. Copy of the agreement with QAD was also provided. So also copy of invoices. It was explained that appellant has merely worked on the property belonging to QAD and, therefore, cannot create any copyright over the software. As the audit officers were not accepting appellant’s explanation, under the provisions of Section 56 of the MVAT Act (as it was then in force), appellant applied for determination of disputed questions under Section 56 of the MVAT Act. The application was filed before the Commissioner of Sales Tax seeking clarification regarding the ambiguity on applicability of VAT on service