Software licence transactions may attract VAT where supplied as goods, and reassessment can proceed pending factual proof.

Software licence transactions may attract VAT if they involve software supplied on media or in electronically readable form, because such transactions can fall within the statutory concept of information technology software under the Tamil Nadu VAT regime. An opinion obtained from the service tax department is not binding on the commercial tax authority, and clarification from the wrong authority does not resolve VAT exposure. Where reassessment is only at a preliminary stage, the assessee must place agreements and invoices before the assessing authority to show that the transactions are outside VAT, and writ interference is generally unwarranted on that basis.

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Issues: Whether the notices issued under Section 27 of the Tamil Nadu Value Added Tax Act, 2006 calling upon the assessee to explain VAT liability on software licence transactions were liable to be interfered with in writ jurisdiction on the ground that the transactions were taxable only as service tax under the Finance Act, 1994.

Analysis: The transactions were examined against the statutory scheme governing "information technology software" under the Tamil Nadu Value Added Tax Act, 2006 and "information technology software service" under the Finance Act, 1994 as amended. The Court noted that software copied on CDs, disks or other media may constitute goods for VAT purposes, while the assessee's own correspondence showed sale of software licences in media or electronically readable form. The opinion obtained from the service tax department was held not to be binding on the Commercial Tax Department, and the assessee was found to have sought clarification from the wrong authority. The Court further held that the earlier decision upholding the validity of the service tax amendment did not decide the VAT liability issue on the facts of the present case. Since the impugned action was only at the stage of reassessment, the assessee was required to produce agreements and invoices before the assessing authority to establish that the transactions were outside VAT.

Conclusion: The writ petitions were not fit for interference and the reassessment proceedings were allowed to continue; the challenge was rejected.

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