TaxTMI 
TaxTMI 
2024 (4) TMI 373
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....s in software from M/s. Kaspersky Lab, UK [Kaspersky], which is engaged in the business of development of various types of computer software and data security protection software. The said codes/keys were used by the appellant in manufacturing Antivirus Software in tangible form for distributing and selling it across India. The appellant paid service tax on the codes/keys imported from Kaspersky under reverse charge and, thereafter, paid central excise duty on clearance of the Antivirus Software manufactured at the Pune factory. 3. The appellant also entered into a distribution agreement dated 01.01.2012 with Kaspersky under which the appellant was appointed as a distributor and was granted a non-exclusive intellectual property right to distribute the products to end users directly or through sub-sellers in the territory of India. Under the said agreement, Kaspersky delivered products in electronic form via electronic transmission channel and sent a unique key file to the appellant that authorized installation and use of the products by the end users. 4. In the year 2012, the appellant entered into an agreement with SATNAM Yoga Instruments [SATNAM] in Himachal Pradesh for tra....
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....e Services', but they did not pay service tax on consideration received for supply of license keys/ codes to the end-customers in retail packs during the period 01.04.2012 to 30.09.2013." (emphasis supplied) 6. The appellant filed a detailed reply denying the allegations made in the show cause notice. 7. The Adjudicating Authority, by order dated 29.02.2016, held that providing license code/product code in retail packs to end users would amount to rendering 'information technology software' service defined under section 65(53a) of the Finance Act and made taxable under section 65(105)(zzzze) of the Finance Act. The relevant portions of the order are reproduced below: "A(i) "Kaspersky" antivirus software supplied in CD Form being Canned Software is goods not liable to Service Tax: M/s. SISPL has contended that "Kaspersky" Antivirus Software supplied in CD Form being canned software is goods not liable to Service Tax. I find that the issue has been clarified by the Central Board of Excise and Customs in the Education Guide as under: "Transfer of right to use goods' is deemed to be a sale under Article 366(29A) of the Constitution of I....
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.... them as per the provisions of Service Tax law. A (iv) Noticees are merely selling/trading the software in CD form: M/s. SISPL has contended that they are merely selling/trading the software, I find that M/s. SISPL has provided "Information Technology Software Service" to the service recipient by providing License Keys/codes (License to Use) of Antivirus Software, which is not trading of goods and party is obfuscating the matter to evade payment of Service Tax on the services provided by them. Providing license key/code (license to use) to use the Information Technology Software is covered under "Information Technology Software Service" prior to 01.07.2012 under item (vi) of section 65 (105)(zzzze) of the Finance Act, 1994 and under Section 66E(f) of the Finance Act, 1994 w.e.f. 01.07.2012. Thus, I find that the activity of providing License key/Codes (right to use) to use the Kaspersky antivirus software, upgradation, implementation of Kaspersky Antivirus Software is an activity covered under the provisions of Finance Act, 1994 and not trading of goods as contended by the party." (emphasis supplied) 8. This appeal seeks to challenge the aforesaid orde....
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....ense key/ code with the Antivirus Software replicated CDs/DVDs in retail packs through dealers during the period 1 March, 2011 to 31 March 2014 should not be demanded with interest and penalty. The demand made in the show cause notice was confirmed by the adjudicated authority. The Tribunal set aside the order of the adjudicating authority and held: "24. The definition of 'information technology software' is same under section 65 (53a) of the Act or under section 65B (28) of the Act. 'Information technology software' has been defined to mean any representation of instructions, data, sound or image, including source code, and object code recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data process machine or any other device or equipment. 25. The contention of the Appellant is that the software developed by it can neither be manipulated nor does it provide any interactivity to a user and, therefore, does not satisfy the requirement of 'information technology software'. According to the Appellant, once the computer system is booted, the Antivirus Software begins i....
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.... the Act prior to 1 July, 2012. Even after 1 July, 2012 the definition of 'information technology software' under section 65B(28) remained the same and so also service tax was not leviable. 31. The matter can be examined from another angle. Section 65B (51) defines a 'taxable service' to mean any service on which service tax is leviable under section 66B. Section 66B provides that there shall be levied service tax on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 65B (44) define 'service' to mean any activity carried out by a person for consideration, and includes a declared service, but shall not include, amongst others, an activity which constitutes merely 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. 32. The contention of the Appellant is that the Antivirus Software posses all the essential features of 'goods' as observed by the Supreme Court in Tata Consultancy Services v/s State o....
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....e software, then such a license would not result in transfer of 'right to use' the software within the meaning of Clause 29(A) of article 366 of the Constitution. However, every condition imposed would not make it leviable to service tax. The condition should be such so as to restrain the right to free enjoyment on the same lines as a person who has otherwise purchased goods is able to have. (emphasis supplied) 14. The Division Bench of the Tribunal then examined the End-User Agreement and held as follows: 45. The agreement provides that the licensee shall have right to use software subject to terms and the conditions mentioned in the agreement. The licensee is entitled to use the software/RDM services from the date of license activation until the expiry date of the license. The licensee is also entitled for the updates and technical support. The conditions set out in the agreement do not interfere with the free enjoyment of the software by the licensee. Merely because 'Quick Heal' retains title and ownership of the software does not mean that it interferes with the right of the licensee to use the software. xxxxxxxxxxx 51. Thus, viewed from a....
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....specific and particular needs and requirements. This Court held that in India the test to determine whether a property is "goods", for the purpose of sales tax, is not confined to whether the goods are tangible or intangible or incorporeal. The correct test would be to determine whether an item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc. It was held that both in the case of 'canned' and 'uncanned' software all these are possible (sic para 16). 52. From the judicial decisions, the settled essential requirement of a transaction for the transfer of the right to use the goods are: (i) It is not the transfer of the property in goods, but it is the right to use the property in goods; (ii) Article 366(29A)(d) read with the latter part of the clause (29A) which uses the words, "and such transfer, delivery or supply"... would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii)....
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....se of M/s. Infotech Software Dealers Association v. Union of India (supra) the challenge was to the validity of Section 65(105)(zzzze) levying service tax on the information technology software service. The High Court held that the question whether the software is "goods" or not would depend on the facts and circumstances of individual case. It is evident on plain reading of the judgment rendered by the Madras High Court in the case of M/s. Infotech Software Dealers Association (supra) that it has not referred to the decision of this Court in the case of TATA Consultancy Services (supra)." (emphasis supplied) 18. In the present case, the End User Licence Agreement is similar to the End User Licence Agreement referred to in paragraph 44 of the decision of the Tribunal and in paragraph 53 of the judgment of the Supreme Court in Quick Heal Technologies. The relevant portions of the End User Licence Agreement in the present case are reproduced below: Standard End User Licence Agreement "1. Licence Grant. Subject to the payment of the applicable licence fees, and subject to the terms and conditions of this Agreement, Kaspersky Lab hereby grants to you a non....
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....d to take such steps to achieve inter operability provided that you may only reverse engineer or decompile to the extent permitted by law, 1.1.4. You shall not, nor permit any third party to copy (other than as expressly permitted herein), make error corrections to or otherwise modify, adaptor; translate the Software nor create derivative works of the Software. 1.1.5. You shall not rent, lease or lend the Software to any other person, nor transfer or sub-licence your licence rights to any other person. 1.1.6. You shall not use this Software in automatic, semi-automatic or manual tools designed to create virus signatures, virus detection routines, any other data or code for detecting malicious code or data. 1.2 Service-Mode Use. You may use the Software on a Client Device or on or as a server ('Server') within a multi-user or networked environment ('Server-Mode') only is such use is permitted in the applicable price list or product packaging for the Software. A separate licence is required for each Client Device or "seat" that may connect to the Server at any time, regardless of whether such licensed Client Devices or seats are concurrently connec....
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....the Software and the Documentation. 3. Support. (i) Kaspersky Lab will provide you with the support services ("Support Services") as defined below for a period of one year on: (a) Payment of it's then current support charge; and (b) Successful completion of the Support Services Subscription Form as provided to you with this Agreement or as available on the Kaspersky Lab website, which will require you to produce the Key Identification File which will have been provided to you by Kaspersky Lab with this Agreement. It shall be in the absolute discretion of Kaspersky Lab whether or not you have satisfied this condition for the provision of Support Services. (ii) Support Services will terminate unless renewed annually by payment of the then current annual support charge and by successful completion of the Support Services Subscription Form again. (iii) "Support Services" means: (a) Daily updates of antivirus databases; (b) Free software updates, including version upgrades; (c) Extended technical support via E-mail and hot phone-line provided by Vendor and/or Reseller; (d) Virus detection and curing updates in ....