In 1979 when The Silicon Valley based Software Engineers took up an Experimental Software development for CIA code named “Oracle” , little did they know that 30 years later they will be tainted as Tax evaders by the Government of India . Oracle US being the parent company , Oracle India has been charged with a Service Tax Evasion of a whooping 230 Crores . Prior to introduction of Information Technology software services , majority of the IT services were enjoying the blanket exemption and were considered the Blue eyed Boy for the Government of India . Oracle Corporation operates in India through Oracle India. The parent company works under a special agreement with its Indian company . Under this agreement, Oracle India has a right to duplicate and distribute the licensed software .Moreover Oracle US acts as the franchiser while the Oracle India is the franchisee having rights and authority to duplicate and sub-license its products in India. The Notice to demand cum show cause slapped by the Service Tax department has two angles to it .
The major allegation is that Oracle India has intentionally and deliberately concealed certain vital facts from the service tax department with an intention to evade more than Rs 140 Crores of Service Tax liable to be paid on Royalty charges as per the provisions of taxable service as defined under Section 65 (105) (zze). Accordingly, any service provided or to be provided to a franchisee, by the franchisor in relation to franchise, is a ‘taxable service’. According to Section 65 (47), “franchise” means an agreement by which the franchisee is granted representational right to sell of manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trademark, service mark, trade name or logo or any such symbol, as the case may be, is involved. Further as per Section 65 (48), ‘Franchisor’ means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designate by a franchisor to enter into franchise on his behalf and the term ‘franchisee’ shall be construed accordingly. However what remains to be seen is that after introduction of Information Technology Software services , acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and the right to use software components for the creation of and inclusion in other information technology software products have become taxable since 2008 . There are a plethora of instances where the Courts have held that in case a new service was introduced, the intention to tax the similar activity prior to its inception was absent . It will be also be interesting to see what stand The Adjudicating authorities take on the question of Limitation as allegations of suppression of facts may not hold ground.