Software sale classification and SEZ exemption depend on notice basis and prescribed procedure at interim stage.

Classification of third-party software, in-house standardised software and hardware as taxable services was prima facie unsustainable where the demand rested on a classification not covered by the show-cause notice and the transactions appeared to be sale of goods, including resale on VAT payment, rather than transfer of copyright or a taxable intellectual property service. Services rendered to SEZ units were also treated as exempt only if the prescribed SEZ procedure was followed; absent such compliance, the exemption was not available prima facie and tax liability remained. Interim protection was therefore confined to partial pre-deposit with stay of the balance demand.

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Issues: (i) Whether, at the interim stage, a prima facie case existed against the demand confirmed by classifying sale of third-party software, in-house standardised software, and hardware as taxable services instead of sale of goods; (ii) whether services rendered to SEZ units could claim exemption without following the prescribed procedure under the SEZ framework.

Issue (i): Whether, at the interim stage, a prima facie case existed against the demand confirmed by classifying sale of third-party software, in-house standardised software, and hardware as taxable services instead of sale of goods.

Analysis: The impugned demand had been confirmed on a basis different from the show-cause notice, and the classification adopted in the order was not preceded by notice to the assessee. The software transactions were found, prima facie, to involve sale of copies of software rather than transfer of copyright, and copyright was outside the scope of the relevant intellectual property service entry. The record also indicated resale of software and hardware on payment of VAT, supporting the view that the activity was trading in goods rather than provision of taxable service.

Conclusion: A prima facie case existed against the classification adopted in the impugned demand, and the demand on that footing was not shown to be sustainable at the interim stage.

Issue (ii): Whether services rendered to SEZ units could claim exemption without following the prescribed procedure under the SEZ framework.

Analysis: The SEZ exemption was treated as a benefit operationalised through the prescribed manner under the SEZ law and the relevant notification. Since the prescribed procedure had not been followed, the exemption could not be claimed as of right at the interim stage, and the assessee was found prima facie liable to discharge tax on the SEZ-related services.

Conclusion: The SEZ-related exemption was not available prima facie without compliance with the prescribed procedure.

Final Conclusion: Interim relief was granted only to the extent of waiver and stay upon partial pre-deposit, while the balance demand remained stayed pending the appeal.

Ratio Decidendi: When taxability is prima facie unsupported by the notice and the transaction appears to be a sale of goods rather than a transfer of copyright or a taxable service, and SEZ exemption is procedure-dependent, interim protection may be confined to partial pre-deposit with stay of the balance.

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