AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 810
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....Kaspersky Lab UK Ltd, United Kingdom, (ii) M/s Trust Port, Czech Republic and (iii) Netasq, France (foreign vendors). This agreement was for the distribution of Anti-Virus software, where the product/software was belonging to the foreign vendors and they used to transfer a fixed number of keys or Anti-Virus packages to the appellant, who inturn used to have an agreement for distribution/re-sale of product to various buyers in India. The appellants were paying VAT on the sale of said software in India and also by way of abundant caution, they had discharged service tax on such sale. 3. The department felt that the appellants were having a non-exclusive intellectual property right to distribute products to sub-resellers in the territory of India and they were eligible to use vendor's trademarks, service marks or logos solely to promote the products and therefore, in the facts of the case, it was felt that the said service would be falling under the category of 'Information Technology Software Service' (ITSS) and since the said ITSS was being provided by entities located outside India, who were providing right to use information technology software for commercial exploitation in th....
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....ght to use the software. He further submits that non-exlusive right to distribute software is different from right to use the software and that the appellant had never received the right to use the software. He also clarified that delivery of software products is done in an electronic form via electronic transmission channels as specified in the Distributor's Purchase Order and the vendors are sending a unique key file to the distributor that authorizes installation and use of products by the end user. He also submits that End User License Agreement (EULA) is entered between the end user and the owner of the Anti-Virus software (foreign vendors) and that appellant had neither acquired any right to use nor given any right to use to the end user. As the EULA is between the ultimate user of software and the vendors (owners of Anti-Virus software), they are not signatory/party to EULA. His argument is that to fall under section 65(105)(zzzze)(v), under which demand has been raised, the right to use for commercial exploitation has to be along with all the three rights i.e., right to reproduce, distribute and sell, whereas, no such right has been given to them and therefore, right for co....
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....nd places his reliance in the case of CST, Mumbai-II Vs 3I Infotech Ltd [2023 (9) CENTAX 226 (SC)]. 11. Heard both sides and perused the records. 12. We find that the short issue for determination is whether in the facts of the case, this transaction is that of sale or whether this transaction is that of service. The adjudicating authority has not given any detailed reasons to arrive at the conclusion that they are liable to pay service tax. He has merely gone by the legal provision and has not rebutted whether in this particular transaction, it would be covered appropriately under the proposed classification and as also in terms of the agreement between the appellant and the foreign vendors, whether there is a temporary or permanent transfer of right to use the software (Anti-Virus software) or otherwise. We find that in this case, the appellants are having an agreement with the foreign vendors but not entering into any EULA with them. The EULA is between the foreign vendor and the ultimate buyer. The product (Anti-Virus software) is being sold to them by their vendor, which in turn is further sold to customers/ end users. The appellants are merely providing the keys electro....
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.... appellant, which authorizes installation and use of the product and the end user to receive periodical updates during the first year. Therefore, it is obvious that they are only providing a unique key file to the distributor (appellant) for activating the use of software by the end user subject to customer entering into EULA. Appellants are required to pay certain royalty from the price of products ordered and based on End User Price List. We have also gone through the Standard EULA, which is between vendor and ultimate customer. The end user is authorized to activate the Anti-Virus software of the vendor with the use of software activation key and the said Anti-Virus software can be in an online mode or in physical mode i.e., CD. In this case, however, it is an admitted position that there is no CD involved and the activation of the software is done online using the software activation key provided by the appellant to the end user, who is entering into EULA with the vendor. The appellants are not themselves making any modification or copy or any other application of the software or the software in the form of software activation key received from the foreign vendors. Almost simil....
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.... the Tribunal formulated the issue as under: "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) in the transaction for the transfer of the right to use goods, delivery of the goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; (v) the approvals, ....
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....n electronic form/physical mode to the end users. The fact that they have also paid service tax does not take away their defense that the transaction is that of sale and not that of service, especially when they have also paid the VAT and paid service tax by way of abundant caution due to certain confusion prevailing as to the said transaction being that of sale or service in view of various judgments. We find that the department has relied on the judgment in the case of 3I Infotech Ltd (supra). We, however, find that this judgment has heavily relied on a paper presented to the 'Committee of Experts on International Co-operation in Tax matters'. This paper is in relation to Direct Tax/Income Tax-Double Tax Avoidance Agreements, wherein the issue was how to treat the income generated from sale of software. Therefore, this judgment is not applicable to the present case where the issue is whether the supply of copy of computer programme, by providing key file where the developer retains all the intellectual property right in the programme amounts to sale of goods or provision of service. In fact, we find that the Tribunal at para 10.7 has, inter alia, held as under: "10.7 It ....
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....ze) is not the correct classification. Therefore, on this ground also, demand would not sustain. 20. Thus, following the ratio of the judgment in the case of Sakri IT Solutions Pvt Ltd (supra) and discussions, supra, we find that the demand for service tax on the appellant would not sustain on merit. 21. We have also taken up the issue of limitation and we find that it is an admitted fact that appellants have paid more service tax that what would have been the amount of service tax payable, if they were required to pay on RCM basis on the supply of so called service from their foreign vendors. In the facts of the case, reliance placed by the appellant on the judgment in the case of Sarovar Hotels Ltd Vs CST (supra) is relevant, where the Tribunal, inter alia, held that when there has been more payment of service tax than what was otherwise payable, it would be a case of revenue neutrality. The department has mainly contested that the ground of revenue neutrality in RCM situation is not a good ground for not demanding the tax payable and has relied on the judgment in the case of Autoform Engineering India Pvt Ltd Vs Pr. CCT, Hyderabad [2025 (5) TMI 68 - CESTAT Hyderabad], wher....