2020 (1) TMI 430 - AT - Service Tax

Antivirus software not taxable as service, deemed sale of goods. Appeal allowed.

Quick Heal Technologies Limited Versus Commissioner of Service Tax, Delhi

The Tribunal held that the Antivirus Software provided by the Appellant does not qualify as 'information technology software' service but constitutes a ... Nature of activity - sale or service - Information Technology services - deemed sale or not - the supply of packed Antivirus Software to the end user by charging license fee - Whether the Antivirus Software provided by the Appellant to the users in packed CDs is a provision of service under “information technology software” and hence leviable to Service Tax prior to 1 July, 2012 as also after 1 July, 2012? - demand alongwith interest and penalty - extended period of limitation. Whether the meaning assigned to ‘information technology software‘ under section 65(53a) of the Act for a period prior to 1 July, 2012 would cover “Quick Heal Antivirus Software”? - HELD THAT:- The Antivirus Software developed by the Appellant is complete in itself to prevent virus in the computer system. Once the computer system is booted, the Antivirus Software begins the function of detecting the virus, which continues till the time the computer system remains booted. The computer system only displays a message that viruses existed and that they have been detected and removed. No interactivity takes place nor there is any requirement of giving any command to the software to perform its function of detecting and removing virus from the computer system. It is also seen from the meaning assigned to ‘interactive‘ that a program should involve the user in the exchange of information. There has to be action and communication between the two. A user should communicate with the computer facility and receive rapid responses, which can be used to prepare the next inputs. In contract, in other softwares like ERP, EXCEL, MS Word, there is continuos interaction between the user and the computer system and these softwares perform only after receipt of input from the user - Such being the position, no service tax was leviable under section 65(105)(zzzze) of the Act prior to 1 July, 2012. Even after 1 July, 2012 the definition of ‘information technology software‘ under section 65B(28) remained the same and so also service tax was not leviable. It is clear from the decision of the Supreme Court in TATA CONSULTANCY SERVICES VERSUS STATE OF ANDHRA PRADESH [2004 (11) TMI 11 - SUPREME COURT] that intellectual property, once it is put on the media and marketed could become ‘goods‘ and that a software may be intellectual property and such intellectual property contained in a medium is purchased and sold in various forms including CDs. The agreement provides that the licensee shall have right to use software subject to terms and the conditions mentioned in the agreement. The licensee is entitled to use the software/RDM services from the date of license activation until the expiry date of the license. The licensee is also entitled for the updates and technical support. The conditions set out in the agreement do not interfere with the free enjoyment of the software by the licensee. Merely because “Quick Heal” retains title and ownership of the software does not mean that it interferes with the right of the licensee to use the software. The transaction in the present Appeal results in the right to use the software and would amount to ‘deemed sale‘. It is, therefore, not possible to accept the contention of the learned Authorized Representative of the Department that the transaction would not be covered under sub-clause (d) of article 366(29A) of the Constitution. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the Antivirus Software provided by the Appellant is a provision of service under “information technology software” and hence leviable to Service Tax prior to 1 July, 2012 as also after 1 July, 2012.2. Whether the transaction of supplying Antivirus Software in CD form constitutes a “deemed sale” and is thus not liable to Service Tax.3. Whether the extended period of limitation under the proviso to section 73 of the Finance Act, 1994 could be invoked.Detailed Analysis:Issue 1: Provision of Service under 'Information Technology Software'The Appellant argued that the Antivirus Software supplied in CD form is not covered under “information technology software” service either prior to 1 July, 2012 under section 65(53a) of the Finance Act, 1994 or after 1 July, 2012 under section 65B (28) of the Act. The definition of 'information technology software' under section 65(53a) and section 65B (28) includes any representation of instructions, data, sound, or image, recorded in a machine-readable form, and capable of being manipulated or providing interactivity to a user.The Appellant contended that their software does not involve user interactivity as it automatically detects and removes viruses without requiring user commands. The Tribunal agreed, stating that the software is complete in itself and does not require user interaction, thus not meeting the criteria for 'information technology software' as defined.Issue 2: Deemed Sale and TaxabilityThe Tribunal examined whether the transaction of supplying Antivirus Software in CD form constitutes a “deemed sale” under Article 366(29A) of the Constitution. The Appellant argued that the software, being a Canned Software, qualifies as 'goods' and is subject to VAT, not Service Tax. The Tribunal referred to the Supreme Court's decision in Tata Consultancy Services v. State of Andhra Pradesh, which held that software put on a media and marketed becomes 'goods' susceptible to sales tax.The Tribunal also considered the CBEC Education Guide for Service Tax, which states that pre-packaged or Canned Software sold on a media is in the nature of goods and not liable to Service Tax. The Tribunal found that the conditions in the End User License Agreement (EULA) did not interfere with the free enjoyment of the software by the licensee, thus constituting a transfer of the right to use the software, which is a deemed sale.Issue 3: Extended Period of LimitationThe Appellant contended that the extended period of limitation under section 73 of the Finance Act, 1994 could not be invoked as there was no suppression of facts with intent to avoid tax. The Tribunal did not specifically address this issue in detail, but the overall conclusion was in favor of the Appellant, indicating that the extended period of limitation was not applicable.Conclusion:The Tribunal concluded that the Antivirus Software provided by the Appellant does not qualify as 'information technology software' service and is instead a deemed sale of goods. Consequently, the transaction is not liable to Service Tax. The impugned order was set aside, and the Appeal was allowed.