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The Petitioner had been supplying anti-virus software services to its clients. The Respondent had raised a tax demand along with interest and penalty on the supply of software services for the period July 2012 to March 2013, by classifying the same as ‘Information Technology Software Services’ under the Finance Act.
Aggrieved, the Petitioner filed a Writ Petition against Service Tax demand order before the Madras HC. It had been argued by the Petitioner that they had discharged VAT on the sale of the Software, since it is deemed to be a 'sale of goods' and has been duly assessed by the authorities under the Tamil Nadu Value Added Tax Act and therefore, the Department’s claim that the same is amenable to service tax is not sustainable.
Referring to the judgement of the Division Bench of Madras HC in the case of ISODA vs. Union of India [2010 (20) STR 289 (Mad)], the HC observed that Anti-Virus software is a representation of instructions recorded in a machine readable form that provides interactivity to the End User through a computer that has working internet connectivity and therefore, Anti-Virus Software squarely falls within the definition of 'Information Technology Software'.
It was further observed by the HC that though the software are goods, when the goods as such are not transferred but the transaction of right to use as transferred to the end-user, it would only be a 'service' and not a 'sale'. Accordingly, applying the rationale of the Division Bench in ISODA (supra), the HC concluded that Anti-Virus Software' in CD forms squarely falls within the essential features of the definition of the 'Information Technology Software. Basis the above observations, the Madras HC upheld the Respondent’s demand of Service Tax along with interest and penalty.
K7 Computing Private Limited [W.P.Nos.25923 & 31485 of 2018]
Right from the turn of the decade, the question as to whether ‘software’ can be termed as ‘goods’ or ‘services’ has consistently remained a hot topic. In this regard, a breakthrough came with the judgement of the SC in the case of TCS vs. State of A.P. [271 ITR 401] wherein it had been held that software, which is incorporated on a media, would be goods and therefore, liable to sales tax.
However, subsequent to the SC judgement, it had been seen that different authorities had been taking different views. The Karnataka HC in the case of Sasken Communications Technologies Limited [Writ Appeal Nos. 90-113 and 118-129 of 2011] had held that the contract for development of software in question is not works contract but a contract for service simplicitor liable to service tax and not VAT.
It would be pertinent to note that conflicting tax treatments of similar transaction by different tax authorities definitely creates hurdles for the businesses. Accordingly, it is likely that legacy cases in relation to tax demands for software would continue.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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