Vat and service tax on software

[K P RAMASWAMY]

we have been charged by the vendors for the customised software service tax and VAT.Is it correct?

[Rama Krishana]

A general understanding of the law is one transaction can not be both i.e (i) sale and (ii) service. Therefore, your question seems to be valid. It is also learned that various petitions are pending before various authorities in this regard. On the other hand, levy of tax on the same transaction is for different reasoning. Therefore, it is suggested that you should pay both the taxes if you do not want to invite the litigation and avoid the cost of litigation.

[DEV KUMAR KOTHARI]

Customized software is made for you only. It is not a packaged software liable to VAT. What you havavailed is service under a contract for works and not under a contract for supply of goods. VAT may be charged for material provided to you like CD, DVD, packaged software for operations or use in conjunction of tailor made software. But not for the software developed by service provider for your use only and for which the service provider does not have copy right. In case service provider is free to sell the same software to to others then the case may fall in catagory of packaged software liable to VAT. Entire contractual terms and conditions need to be reviewed.

[DEV KUMAR KOTHARI]

Customized software is made for you only. It is not a packaged software liable to VAT. What you havavailed is service under a contract for works and not under a contract for supply of goods. VAT may be charged for material provided to you like CD, DVD, packaged software for operations or use in conjunction of tailor made software. But not for the software developed by service provider for your use only and for which the service provider does not have copy right. In case service provider is free to sell the same software to to others then the case may fall in catagory of packaged software liable to VAT. Entire contractual terms and conditions need to be reviewed.

AI Summary

VAT and Service Tax on Customized Software: Works Contract Considerations and Material Tax Implications. A query was raised about the applicability of VAT and service tax on customized software. One response highlighted that a transaction cannot simultaneously be classified as both a sale and a service, suggesting payment of both taxes to avoid litigation. Another response clarified that customized software, developed specifically for a client and not resold, is considered a service under a works contract and not subject to VAT. However, VAT may apply to materials like CDs or DVDs. It was advised to review the entire contractual terms to determine the correct tax liability.