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

VAT and Service Tax on Software Purchases: Double Taxation Issue Explained with State Law and Service Tax Rules. A query was raised regarding the applicability of VAT and Service Tax on the purchase of standard software like Windows, where the vendor charged 5% VAT and 10.3% Service Tax on the basic sale value. The response clarified that, according to state law, software is considered goods and subject to sales tax, while service tax law treats software sales as a service since only the right to use, not ownership, is transferred. Charging both taxes aims to satisfy tax authorities and avoid litigation, but it results in double taxation and shifts the tax burden to the customer.