Packaged software classification and licence-value exemption drive excise treatment of banking software under later notifications.
Software supplied under a licence model as a common banking platform, even if customised, integrated and implemented for individual banks, may be treated as packaged or canned software rather than customised software for excise purposes. On that basis, the excise valuation could extend to the software value recoverable as licence fee, while the service tax component for development, customisation, installation, integration and implementation could be adjusted through cenvat credit. Later exemption notifications extending relief to the licence value were treated as applicable for the relevant period, and the limitation objection was rejected on the facts stated.
Issues: (i) Whether Finacle software was classifiable as packaged or canned software liable to central excise duty, or as customized software eligible for exemption; (ii) whether the value on which service tax was paid could also be subjected to central excise duty and whether credit or set-off was available; (iii) whether the appellant was entitled to exemption under the successor exemption notifications; (iv) whether the demand was barred by limitation.
Issue (i): Whether Finacle software was classifiable as packaged or canned software liable to central excise duty, or as customized software eligible for exemption.
Analysis: The software was designed as a banking platform for multiple users in the banking sector, and although it was customised, integrated and implemented for individual banks, it was not developed ab initio for each customer. The software was supplied through a licence model and only the object code was transferred. On that basis, the activity was held to fall within packaged or canned software rather than customized software for a specific user.
Conclusion: The software was held to be packaged or canned software and not customized software.
Issue (ii): Whether the value on which service tax was paid could also be subjected to central excise duty and whether credit or set-off was available.
Analysis: The activity connected with development, customisation, installation, integration and implementation was recognised as falling within Information Technology Software Service and service tax had been discharged from 16.05.2008. The decision held that excise duty remained leviable on the software value recoverable as licence fee, but the service tax component could be adjusted by way of cenvat credit for discharge of service tax liability on the same activity stream.
Conclusion: Central excise duty was held payable on the software value, with cenvat credit available for the service tax stream as indicated.
Issue (iii): Whether the appellant was entitled to exemption under the successor exemption notifications.
Analysis: Notification No. 6/2006-CE was found inapplicable because the product was treated as packaged software. However, the later notifications extending exemption to the value attributable to the software licence were construed as granting unconditional relief, and the benefit was held available for the relevant later period.
Conclusion: Exemption under the successor notifications was held available, and excise duty was not required to be paid for the covered value for the later period.
Issue (iv): Whether the demand was barred by limitation.
Analysis: The limitation objection was considered and rejected on the facts of the case.
Conclusion: The demand was held not to be time-barred.
Final Conclusion: The impugned orders were modified and the matter was sent back for requantification of duty and reconsideration of penalties in light of the findings on classification, exemption and service tax overlap.
Ratio Decidendi: Software developed as a common banking platform and supplied under a licence model, even if customised for individual customers, may be treated as packaged software for excise purposes; however, later exemption notifications extending relief to the licence value must be applied for the relevant period.
TaxTMI 
AI Drafter ✕
TaxTMI 
