Applicability of Service Tax on Sale made to IIT/IIM

[MANOHAR KALBURGI]

Hi Sir/Madam

The case goes like this,

When software is imported for the purpose of resale to IIT/IIM, is it liable for Service Tax?

Since the IIT and IIM falls under the Government Authority and such sale can be taken as a service provided to Government Authority and is it exempted from Service Tax?

The Notification Notification No. 25/2012-Service Tax dated- 20th June, 2012 says only limited services i.e

'12. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) ***

(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(c) ***

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

(f) ***

“12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that nothing contained in this entry shall apply on or after the 1st April, 2020;”Inserted vide Notification 9/2016- Service Tax to be in effect from 1 March 2016..

My doubt is, only these services listed in 12 and 12A exempted or even Sale of Software to IIT/IIM also exempt?

Please look into the issue and provide your valuable opinion/s

Thanks in Advance

[KASTURI SETHI]

Dear Sir,

What is the period involved ?

[KASTURI SETHI]

After 1.7.12, for availing exemption from Service Tax in respect of any service, that service should specifically fall in the list of exempted services under Notification No.25/12-ST dated 20.6.12 as amended otherwise no exemption is available.

In the present scenario, the most crucial point is whether re-resale of software qualifies as service or not ? The question of exemption will arise only if re-sale of software is service.

Have you gone through Board's circular No.81/2/2005-ST dated 07.10.2005 based on the judgement of Supreme Court ? If software is sold as such, then it is goods. If software is developed and then sold to the user, it is service.

However, no specific exemption is available to such service provided to Govt. authority.

[MANOHAR KALBURGI]

The period involved is from FY 2014-15 to 2017-18

Software imported and as such it is sold to the IIT/IIM, such software gives only a right to use specific period say one year.

[KASTURI SETHI]

Sh.Manohar Kalburgi Ji,

What is the status of software after one year ? Whether it becomes outdated ? Are you hinting towards the service, namely, "Right to Use of Tangible Goods Services " under Section 65 (105)(zzzzj) of the Finance Act, 1994 ? In your query, you have used the word,'RESALE'. If it is resale, then how the question of right to use arises ? Is software tangible goods ?

[MANOHAR KALBURGI]

The software is given for "right to use for 100 years and yearly maintenance has to be done by the vendor.

The transaction goes like this.

IIM/IIT places the order on Pvt company(Indian company) and the pvt company places the order on overseas principal. say IIM pays 10lacs to the pvt company and such company will withhold 2lacs as its margin and remaining 8lacs will be given to the principal.

invoices will be raised on the Pvt company to the IIM/IIT for 10lacs.

The software license directly it will be given to the IIM/IIT.

[KASTURI SETHI]

In view of your reply at serial no.5 dated 15.12.2020, Service Tax is leviable.

[MANOHAR KALBURGI]

Thank you for your quick response. Much appreciated.

[KASTURI SETHI]

Dear Sir,

The querist's satisfaction gives me immense pleasure. My aim is achieved.

AI Summary

Resale of Imported Software to IIT/IIM Not Exempt from Service Tax; Notification No. 25/2012 Clarifies Applicability A discussion on the applicability of Service Tax for the resale of imported software to IIT/IIM questioned whether such transactions are exempt as services to a government authority. The key issue was whether the resale of software qualifies as a service, which would determine tax exemption eligibility. It was clarified that only services listed under Notification No. 25/2012 are exempt, and resale of software does not qualify unless it is developed and then sold. The transaction described involved a private company acting as an intermediary, and it was concluded that Service Tax is applicable.