TaxTMI 
TaxTMI 
2023 (12) TMI 182
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....alled on the peripherals supplied as part of the above system. The appellants used to invariably pay applicable CST/VAT on sale of such software and no service tax was paid thereon. Since the such software was invariably supplied on appropriate medium i.e. hard-drives and other equipment, constitutes "goods", and therefore, the same does not attract service tax. Learned counsel relied on the CBEC Circular No. 644/35/12 dated 12.07.2002. From the appeal memorandum, it is seen that the appellants are not contesting the service tax already paid on STM Software. The contest is on the inclusion of value of bought out software supplied to the clients along with STM software in the assessable value. 3. Learned Authorized Representative relies on the impugned order. 4. We have considered the rival submissions. We find that the appellant had developed Smart Terminal Software (STM) for comprehensive terminal automation which they had supplied for operating the above equipment supplied by them. The appellants have also occasionally supplied bought out standard software such as Oracle/ MS Windows etc to be installed on the peripherals supplied as part of the above equipment supplied by t....
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....r for the bought out softwares was placed by the clients and no separate invoice for the bought out softwares was made by the appellants. 7. The appellants also claimed that Rule 5 of the Service Tax (Determination of Value) Rules 2006 was declared ultravirus by an order of Hon'ble High Court of Delhi in the case of Intecontinental Consultants & Technocrats P. Ltd. 2014 (29) STR 9 (DEL.), the said order of Hon'ble High court was also approved by Hon'ble Apex Court as reported in 2018 (10) GSTL 401 (SC). 8. The appellant had claimed that the bought out items were in the nature of reimbursable expenses and therefore, not includible in the value for the purpose of service tax. The appellant in their defense reply before the Commissioner has clearly asserted as follows: "4) The software sold by our client includes the software developed by them on their own, which is a generalized software, usable at the terminals. It is not specifically designed from customer to customer, and in that sense, it is not a custom made tailor made software. The same is merely made adjustable to the particular site requirement, suitably. Together with such software, our client also procures o....
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....ONS OF LAW 35. The New definition of the term "service" has been given under the clause 44 of Section 65B of the Act 1994 which reads as follows : "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1. For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,- (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Me....
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....her or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" 38. Thus, the above clause specifies the cases which the tax in relation to sale and purchase of goods will include and also outlines its applicability even in the case of deemed sale. 39. Section 66E deals with the concept of declared services. This Section reads as follows: "66E. The following shall constitute declared services, namely:-- ....
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....o use goods for case, deferred payment or value consideration is considered as deemed sale under sub - clause (d) of Article 366(29A) of the Constitution of India. Right to use of tangible goods service has also been brought under the service tax net by the Finance Act, 2008, with effect from 16.05.2008 vide notification No. 18/2008ST, dated 10.05.2008 whereby taxable service has been defined under Section 65(105)(zzzzj) of the Act 1994 to mean as: " Any services provided or to be provided, to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances." POSITION OF LAW 42. TATA Consultancy Services (supra) was a case in which the specific issue of computer software packages was considered as is the concern in the present case also. There was, however, a distinction drawn insofar as the 'uncanned software' and 'canned software' alternatively termed as 'unbranded' and 'branded' is concerned. The distinction is in that a 'canned software' contains....
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....llectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction/sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programs have all these attributes". At this stage it must be mentioned that Mr Sorabjee had pointed out that the High Court has, in the impugned judgment, held as follows: "... In our view a correct statement would be that all intellectual properties may not be 'goods' and therefore branded software with which we are concerned here cannot be said to fall outside the purview of 'goods' merely because it is intellectual property; so far as 'unbranded software' is concerned, it is undoubtedly intellectual property but may perhaps be outside the ambit of 'goods'." (emphasis supplied) Mr Sorabjee submitted that the High Court correctly held that unbranded softwar....
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..... The question whether the papers or diskettes etc. containing advice and/or information are goods for the purpose of the Customs Act was answered in the affirmative. This Court clearly held that "the intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable". "When technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof". It was concluded so in paragraph 46: "46. The concept that it is only chattel sold as chattel, which can be regarded as goods, has no role to play in the present statutory scheme as we have already observed that the word "goods" as defined under the Customs Act has an inclusive definition taking within its ambit any moveable property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans, etc". (underlining by us for emphasis) 44. We may also refer to and rely upon a decision of this Court in the ....
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.... deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods." 45. While holding that in a contract for the transfer of the right to use goods, the taxable event would be the execution of the contract for delivery of the goods, it was observed : " 27. Article 366(29A)(d ) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof ....
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.... to use the goods: xx xx xx "97. ... a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute viz. a "transfer of the right to use" and not merely a licence to use the goods; e. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others." 48. In the case of BSNL (supra), His Lordship noticed that none of the aforesaid attributes were present in the relationship ....
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.... bailment where goods are left with the bailee to be used by him for hire. (e) In the case of Article 366(29A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. (f) The levy of tax under Article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. (h) The agreement or the contract between the parties would determine the nature of the contract. Such agreement has to be read as a whole to determine the nature of the transaction. If the consensus ad idem as to the identity of the good is shown the transaction is exi....
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....ransaction of sale of software and once it is accepted that the software put in the CD is "goods", then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to "deemed sale" which would not attract service tax. 9. It can be seen from the above decision that when such software is supplied (preloaded) in a medium like hardware in the instant case, the same cannot be treated as provision of service. The said supply would amount to sale of goods. In this background, the demand of service tax on the value of bought out software by the appellant cannot be sustained. The demand to that extent is set aside. Appeal is allowed in above terms. (Pronounced in the open court on 04.12.2023) ============= Document 1 Sold To Ship To Site HINDUSTAN PETROLIUM CORPORATION LTD, SURYAPET TERMINAL, IHAMPET, SURYAPET NALGONDA, ANDRA PRADESH - 508213 TIN NO-28790125395 CST NO-6131273 DATED: 01/04/2005 St Particulars TAS Software with license: Supply of complete Terminal Automation Software with user license as defined in the specifica....