Double taxation on software paper licenses

[Guest]

Hi, I own/run a company that provides IT solutions & services to small businesses & start-ups.. We also resell Hardware equipment, and Software (Microsoft, Adobe, etc) licenses.. For hardware, packaged software, services, the taxation is pretty straight-forward. However, I am not aware on what to do, in case of Software paper licenses, that attract double-taxation (Service Tax & VAT)...Let me explain ...

I have two companies (For the sake of billing)

1. iRave Tech - Partnership. This was the first company. This company has a Service Tax number ONLY. When we started off, we were providing on services, and not reselling any hardware equipment ..
2. iRave Tech - Sole proprietorship - This company was started around 2 years back, because I wanted to start reselling hardware equipment. This company has ONLY a VAT number, and NO Service Tax Number ... I was told to do it this way, by my (ex)accountant ...

Both companies have different bank accounts ... For most parts, everything is fine.. But, the issue arises when I have to charge Service Tax & VAT... I need to bifurcate the payment received for Service Tax & VAT, and I cannot seem to figure out how .. I was going by my (ex)accountant's suggestion, and am currently, losing the VAT set-off.

I would much appreciate any suggestions/advise on how to do the billing & receive payment, for the above scenario ..

[KASTURI SETHI]

Your problem is how to segregate the value of sale and service regarding information technology software. The details are provided under erstwhile Section 65(105)(zzzze) of the Finance Act, 1994. Search on internet. After reading these details you would be able to bifurcate. Only software engineer can understand well and bifurcate. It is also not the job of CA or Cost Accountant.

[Ganeshan Kalyani]

The taxation of software service is subject to dispute. Under VAT it is said that since you transfer right to use the property, VAT should be charged. Under service tax it is considered software service and should subject to service tax. As a reason in practical both vat and service tax is levied by dealers.

[YAGAY andSUN]

For having a clear view please check following advance ruling

M/s Microsoft Corporation (India) Private Ltd., 2013 (9) TMI 110 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI

AI Summary

Double taxation on software licenses: overlapping VAT and service tax characterisations require value bifurcation to determine tax incidence. Double taxation occurs when paper software licences are simultaneously characterised as transfers triggering Value Added Tax and as software services subject to service tax. The operative task is to classify the transaction and bifurcate the invoice value between sale and service using statutory tests, contract terms and relevant advance rulings so as to determine applicable taxes and preserve input tax credits.