Major relief for IT firms: Govt sets aside Rs 10k-cr service tax demand

In a relief to IT companies, a Rs 10,000 crore service tax demand notices on dozens of IT companies has been set aside, the government said today.

The tax department had slapped service tax demand notices on about 200 information technology and IT-enabled services companies in the country. It had asked them return export benefits claimed between 2012 and 2016 on softwares provided to clients outside India.

A day after IT companies raised the issue of tax demand with Finance Minister Arun Jaitley in the customary pre-budget consultations, the finance ministry issued a statement to state that the Commissioner (Appeals) set aside the orders of the lower adjudicating authority.

The statement referred to reports of tax officials raising tax demand in respect of export of IT/IT enabled services provided to clients abroad.

The notices, it said, had been reportedly sent on "the basis of place of supply rules in respect of these services which were apparently provided in India and therefore were liable to be taxed."

"In a subsequent development, the Commissioner (Appeals) set aside the orders of the lower adjudicating authority where refund was disallowed and has also upheld the orders where refund had been granted," the statement said.

As a result, apprehensions about the negative effects on the software industry are without basis, it added.

IT industry association Nasscom had yesterday said that it has got an assurance from the government that the service tax notices served to several IT companies has been corrected and the issue has been resolved.

The tax notices, reports had stated, were based on the premise that supplying software to clients outside India does not tantamount to exports for IT and ITES companies because the client sends specifications through email.

In view of the tax department, the email containing specifications is nothing but goods made available to the Indian firm to provide IT/ITES services to the foreign buyer and so it is a service.