2022 (8) TMI 283 - SC - Service Tax

Quick Heal Antivirus Software License Key Sale: Not Subject to Service Tax

COMMISSIONER OF SERVICE TAX DELHI Versus QUICK HEAL TECHNOLOGIES LIMITED

The Supreme Court upheld the Tribunal's decision that the sale of Quick Heal Antivirus Software, including the license key/code, constitutes a deemed ... Deemed sale or not - right to use the software - Antivirus Software license key/code supplied by the respondent along with CD/DVD replicated with Quick Heal Brand Antivirus Software through dealers/distributors to the EndCustomers is liable to Service Tax or not - Information Technology Service or not - transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right of use such goods - declared service under clause (1) of Section 66E of the Finance Act, 1994 or not - HELD THAT:- The Tribunal laid much emphasis on the fact that in accordance with the agreement the licensee has the right to use the software subject to the terms and the conditions laid therein. The Tribunal took notice of the fact that in accordance with the agreement the licensee is entitled to use the software/RDM service from the date of the activation of the license till the date of its expiry. The Tribunal also took into consideration the fact that the licensee is also entitled for the updates and the technical support. In view of the Tribunal, the right to use the software would amount to the “deemed sale”. The Tribunal rejected the contention of the revenue that the transaction would not be covered under subclause (d) of the Article 366(29A) of the Constitution. The declared services include the services of renting of immovable property, works contract, hire purchase/instalment payment system, supply of food/drink, etc. In other words, under the Constitution what is related to deemed sale is also covered under the deemed service as per the above Section. The sum and substance of the ratio of the case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA [2006 (3) TMI 1 - SUPREME COURT] as discernible is that the contract cannot be vivisected or split into two. Once a lumpsum has been charged for the sale of CD (as in the case on hand) and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided. The artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is “goods”, then there cannot be any separate service element in the transaction. It is so because even otherwise the user is put in possession and full control of the software. It amounts to “deemed sale” which would not attract service tax. The impugned order of the Tribunal suffers from no jurisdictional or any other legal infirmity warranting any interference in the present appeal - Appeal dismissed. Issues Involved:1. Whether the transaction results in the right to use the software and would amount to deemed sale.2. Liability of the Antivirus Software license key/code to Service Tax.3. Classification of the service provided under Information Technology Service.4. Whether the transfer of goods by way of licensing or any such manner without transfer of right to use such goods is a declared service under Section 66E of the Finance Act, 1994.Detailed Analysis:1. Whether the transaction results in the right to use the software and would amount to deemed sale:The Tribunal held that the transaction involving the sale of Quick Heal Antivirus Software, which includes the supply of a license key/code, results in the right to use the software, thus amounting to a deemed sale. The Tribunal emphasized that the software, once put on a medium like a CD and sold, should be treated as goods, as per the Supreme Court's decision in Tata Consultancy Services v. State of Andhra Pradesh. The Tribunal also noted that the software did not have an element of interactivity, which further supports the classification of the transaction as a sale of goods rather than a service.2. Liability of the Antivirus Software license key/code to Service Tax:The Tribunal concluded that the antivirus software, when sold in a prepackaged form, should not be liable to service tax. The Tribunal relied on the Central Board of Excise & Customs (CBEC) guidelines, which clarified that prepackaged/canned software is considered goods and not services. The Tribunal also noted that the software's nature as goods could not be altered by the fact that updates and technical support were provided as part of the sale.3. Classification of the service provided under Information Technology Service:The Tribunal found that the antivirus software did not fall under the category of 'Information Technology Software Service' as defined under Section 65(105)(zzzze) of the Finance Act, 1994, prior to 01.07.2012, and under Section 66E(f) of the Finance Act, 1994, w.e.f. 01.07.2012. The Tribunal observed that the software did not involve any interactivity or manipulation by the user, which is a requirement for classification under Information Technology Software Service.4. Whether the transfer of goods by way of licensing or any such manner without transfer of right to use such goods is a declared service under Section 66E of the Finance Act, 1994:The Tribunal held that the transaction involving the sale of antivirus software, including the license key/code, did not fall under the declared services category under Section 66E of the Finance Act, 1994. The Tribunal emphasized that the transaction should be viewed as a whole and not artificially split into separate components of goods and services. The Tribunal concluded that the right to use the software was transferred to the end user, making it a deemed sale and not a service.Conclusion:The Supreme Court upheld the Tribunal's decision, affirming that the transaction involving the sale of Quick Heal Antivirus Software, including the supply of a license key/code, results in the right to use the software and amounts to a deemed sale. Consequently, the transaction is not liable to service tax. The Court emphasized that the entire transaction should be viewed as a sale of goods, and any attempt to artificially segregate the transaction into separate components of goods and services is not tenable in law. The appeals filed by the revenue were dismissed, and the Tribunal's order was upheld.