Service Tax & VAT applicability on standard software purchase like windows

[Manish goyal]

We have purhased windows software, vendor is charging 5% VAT & 10.3% Service tax, both on basic sale value.

Is this right.

[Vijay Chitte]

NO, but require come forward for letigation.

As per state act software is goods which is specifided schedule entry in respective state Act and subejct to sale tax.  

As per Service tax act, sale of software is a service by reason that "there is no sale of software as such as entire property in software is never passed on to buyer, Only right to use is transferred, There will be "Sale" of software ONLY if souce coad and entire property in software is transferred to buyer.  

So that vendore are charging both taxes, At least this strategy would satisfied both the departments to avoid unneccessary letigation, But i agreed that this would lead to double taxation and passing of both VAT and Service tax burden to the customer.



AI Summary

Software classification as good versus service can produce concurrent VAT and service tax liability on packaged software. Vendors sometimes impose both value-added tax and service tax on packaged software because state VAT law treats software as goods while service tax treats transfers of a mere right to use as a service; only transfer of source code and full proprietary rights converts the transaction into a sale of software for goods-tax purposes, and dual charging is used to mitigate departmental disputes but results in overlapping tax incidence.