2023 (12) TMI 182 - AT - Service Tax

Software supplied with hardware constitutes sale of goods not service provision under service tax law

CESTAT Ahmedabad held that bought-out software supplied along with STM software constitutes sale of goods, not provision of service. Following SC ... Levy of service tax - inclusion of value of bought out software supplied to the clients along with STM software in the assessable value. The principal argument of the appellant is that the software supplied by them construed goods and the same do not attract levy of service tax. HELD THAT:- The decision of Hon’ble Apex court in the case of COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED [2022 (8) TMI 283 - SUPREME COURT], becomes relevant - It can be seen from the above decision that when such software is supplied (preloaded) in a medium like hardware in the instant case, the same cannot be treated as provision of service. The said supply would amount to sale of goods. The demand of service tax on the value of bought out software by the appellant cannot be sustained. The demand to that extent is set aside. Appeal is allowed. Issues Involved:1. Whether the software supplied by the appellant constitutes 'goods' and is thus exempt from service tax.2. Whether the value of bought-out software should be included in the assessable value for service tax purposes.Summary:Issue 1: Whether the software supplied by the appellant constitutes 'goods' and is thus exempt from service tax.The appellant, Advanced Sys Tek Private Limited, is engaged in supplying 'batch controller flow measuring instruments' and has developed Smart Terminal Software (STM) for terminal automation. They also occasionally supply bought-out standard software such as Oracle/MS Windows, which are installed on peripherals supplied as part of the system. The appellant argued that these software packages, supplied on appropriate media, constitute 'goods' and do not attract service tax, relying on CBEC Circular No. 644/35/12 dated 12.07.2002 and various judicial decisions. The Tribunal agreed with the appellant's assertion that the software supplied preloaded on a medium like hardware amounts to a sale of goods and not a provision of service, referencing the Supreme Court's decision in Quickheal Technologies Ltd. and other relevant cases.Issue 2: Whether the value of bought-out software should be included in the assessable value for service tax purposes.The appellant contested the inclusion of the value of bought-out software in the assessable value for service tax. They had paid VAT on these software packages and argued that they should not be included in the service tax value. The Tribunal noted that there was no bifurcation of equipment and software in the purchase orders, and the bought-out software was supplied and installed in the machines sold by the appellant. The Tribunal found that the bought-out software, being standalone and off-the-shelf, should not be included in the assessable value for service tax. The Tribunal also referenced the decision in Intercontinental Consultants & Technocrats P. Ltd., which declared Rule 5 of the Service Tax (Determination of Value) Rules 2006 ultravires. Consequently, the Tribunal set aside the demand for service tax on the value of the bought-out software and allowed the appeal in these terms.Conclusion:The Tribunal concluded that the software supplied by the appellant constitutes 'goods' and is exempt from service tax. Additionally, the value of bought-out software should not be included in the assessable value for service tax purposes. The appeal was allowed, and the demand for service tax on the value of bought-out software was set aside.