The main legal point established in the judgment is that a circular cannot override the statutory provisions of the Finance Act and must be in line with the provisions of the Act.

1. The writ petition is for declaration to declare the Circular dated 7.10.2005 issued by the second respondent, the Central Board of Excise and Customs as ultra vires section 83 of Finance Act, 1994 read with sections 37B and 65(19) of the Central Excise Act, 1944 and is in violation of Articles 14, 19(1)(g) and 265 of the Constitution of India insofar it relates to the petitioner.

2. The petitioner which is engaged in the business of publishing newspapers and periodicals had entered into a contract on 31.10.2000 with CCI Europe A/S Denmark for the supply of software for pagination system. That apart, an agreement for maintenance of software was also entered, by which the petitioner paid DKK 2,209,690 equivalent to Indian Rupees 1.66 crores (approximately).

(a) The second respondent issued a circular on 17.12.2003 to the effect that the software service would be outside the purview of service tax and it is also stipulated in section 65(19) of the Finance Act, 1994 that it does not include Information Technology Services and as per the explanation to that Section, the maintenance of computer software is included in information technology service.

(b) After the judgment was rendered by the Supreme Court in Tata Consultancy Service v. State of Andhra Pradesh [(2005) 1 SCC 308], wherein it was held that canned software amounts to tangible property and when the same is sold it would be liable for sales tax, the second respondent issued the impugned circular dated 7.10.2005 to the effect that software amounts to “goods” and therefore, the maintenance of software will attract maintenance charges liable for service tax.

(c) Based on the impugned circular of the second respondent, the third respondent is insisting for payment of service tax on maintenance charges payable to the company in Denmark and therefore, the impugned circular is challenged on various grounds including that the same is ultra vires section 83 of the Finance Act, 1994 and section 37B of the Central Excise Act, 1944, that when the section itself takes away the maintenance of software from the purview of service tax, the second respondent cannot by virtue of such circular impose service tax, that it is ultra vires Article 265 of the Constitution of India, since it seeks to impose service tax through a circular which is not permissible in law and therefore, it affect Articles 19(1)(g) and 14 of the Constitution of India.

3. In the counter affidavit filed by the respondents, it is stated that the services done by outsourcing agencies are to be treated as business auxiliary service as defined under section 65(19) of the Finance Act, 1994 as substituted by the Finance (No.2) Act, 2004 and the definition “information technology service” includes computer software, system networking, data processing, etc., after the amendment effected in the Finance Act, 2006 and after 1.5.2006 only the services relating to designing or developing of computer software or system networking or computerised data processing or any other services primarily in relation to operation of computer systems are excluded and therefore, it does not mean that it is not taxable under maintenance or repair service. Therefore, according to the respondents, the maintenance branch of information technology was brought into the purview of service tax structure by the amendment made to section 65(19) by Explanation (b) in Finance Act, 2004.

(a) After the amendment, in respect of import of service, section 66A(1) provides that any service specified in section 65(105) is taxable service provided that the person has established a business or has a fixed establishment from which the service is provided or has his permanent address or usual place of residence in a country other than in India and that the same is received by a person who has his place of business or usual place of residence in India.

(b) To attract service tax, the contracted agreement need not necessarily be maintenance contract or agreeme