Antivirus software license codes to end users qualify as deemed sale under Article 366(29A), not taxable service

CESTAT NEW DELHI held that transactions involving supply of license codes/keys for antivirus software in retail packs to end users do not attract service tax liability. Following the precedent in Quick Heal Technologies case, the Tribunal ruled that such transactions constitute deemed sale under Article 366(29A) of the Constitution rather than provision of service, as end users receive temporary/non-exclusive usage rights through End User License Agreements. The adjudicating authority's order requiring service tax payment under section 65(105)(zzzze) of Finance Act was set aside. Appeal allowed.

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Issues Involved:
1. Liability to pay service tax on transactions with end-users for the supply of license codes/keys of Kaspersky Antivirus Software.
2. Classification of the supply of Kaspersky Antivirus Software as 'information technology software' service.
3. Applicability of the Supreme Court's decision in the BSNL case and Quick Heal Technologies case.

Summary:

1. Liability to Pay Service Tax:
The appellant, M/s. Sakri IT Solutions Pvt. Ltd., challenged the order dated 03.03.2016 by the Additional Director General (Adjudication), Delhi-I, which confirmed the demand of service tax for the period from 01.04.2012 to 30.09.2013, invoking the proviso to section 73(1) of the Finance Act, 1994. Penalties were also imposed u/s 78 and 77 of the Finance Act. The show cause notice alleged that the appellant supplied Kaspersky Antivirus software key/codes in retail packs to end-users without discharging service tax liability, treating these transactions as provision of service rather than sale.

2. Classification as 'Information Technology Software' Service:
The adjudicating authority held that providing license code/product code in retail packs to end-users amounted to rendering 'information technology software' service defined u/s 65(53a) and taxable u/s 65(105)(zzzze) of the Finance Act. The appellant contended that the Kaspersky Antivirus Software supplied in CD form was 'goods' and not liable to service tax. The authority rejected this, stating that the appellant provided 'Information Technology Software Service' by providing license keys/codes of Antivirus Software, which does not constitute trading of goods.

3. Applicability of Supreme Court Decisions:
The appellant relied on the Tribunal's decision in Quick Heal Technologies Limited vs. Commissioner of Service Tax, Delhi, which was upheld by the Supreme Court. The Tribunal in Quick Heal held that the supply of pre-packaged software in retail packs constituted a 'deemed sale' and not a service, thus not liable to service tax. The Supreme Court affirmed that once software is put on a medium and marketed, it becomes 'goods' and any transaction involving such software is a 'deemed sale' under Article 366(29A) of the Constitution, not attracting service tax.

Conclusion:
The Tribunal found that the End User Licence Agreement in the present case was similar to that in Quick Heal Technologies. Therefore, the adjudicating authority was not justified in requiring the appellant to discharge service tax liability on transactions with end-users for the supply of license codes/keys of Kaspersky Antivirus Software in retail packs. The order dated 29.02.2016 by the Additional Director General was set aside, and the appeal was allowed.

Order Pronounced on 08.04.2024.

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