TaxTMI 
TaxTMI 
2026 (9) TMI 817
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....R HON'BLE SRI JUSTICE P.SAM KOSHY) Heard Mr. V. Lakshmikumaran assisted by Mr. Narendra Dave, Mr. Chanda Sumanth and Ms. Anushka Rastogi, representing M/s. Lakshmikumaran & Sridharan for the Petitioner; Mr. Swaroop Oorilla, learned Special Government Pleader for State Tax for respondent Nos. 1 to 4 in Writ Petition Nos. 5729 of 2013, and Mr. A. Rama Krishna Reddy, learned counsel for respondent Nos. 5 and 6 in Writ Petition Nos.5729 of 2013. 2. Since the issue involved in the instant Writ Petitions is one and the same and the parties also being the same, they are heard together and are decided by this Common Order. 3. For convenience, the facts in Writ Petition No. 12763 of 2016 are discussed hereunder. 4. The present Writ Petition under Article 226 of the Constitution of India has been filed by the petitioner challenging the legality and the validity of the Assessment Order A.O. No. 11436, dated 18.03.2016, read with Revised Assessment Order A.O. No. 12530, dated 22.03.2016, passed by the respondent no. 1 levying VAT under the Telangana Value Added Tax Act, 2005 (for short 'TGVAT Act, 2005') of Rs. 52,39,44,119/- on the service turnover of Rs. 11,50,52,48,700/- for the....
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....g) Providing training to users in respect of customized software. h) Providing warranty support in respect of customized software. 7. In pursuance of the authorisation dated 02.11.2015, issued by the Deputy Commissioner (CT), Hyderabad Rural Division, Hyderabad, to take up assessment, respondent No. 1 issued notice of assessment VAT 305A, dated 04.11.2015, proposing to levy VAT of Rs. 52,55,06,080/- on the service turnover of Rs. 11,50,52,48,700/- @ 4% or 5% as applicable during the relevant period. Thereafter which, the respondent No. 1 passed a revised Assessment Order dated 22.03.2016 taking into consideration the adjustment of input tax credit of Rs. 11,06,480/- for the period March, 2010 and demanding VAT of Rs. 52,39,44,119 for the assessment years 2010-11 to 2012- 13. The assessment order dated 18.03.2016 and the revised assessment order dated 22.03.2016 were served on the petitioner on 22.03.2016, on the following allegations: a) That the petitioner has collected an amount of Rs. 1150,52,48,700/- towards consultancy charges from their customers at different stages of developing the software and claimed exemption without furnishing any evidence to sho....
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....rough Error Correction Procedure; and d) On-site services as may be appropriate. 10. Learned Senior Counsel for the petitioner also contended on the issue of issuance of Digital Signature Certificates is purely a service and hence, no VAT is paid on the same. The Invoice clearly states Class 3 Digital Certificate issued - 11 Nos., Class 2 Digital Certificates issued - 248 Nos. and New Class 3 Certificates - 9 Nos. and that it is clearly evident that the transaction of issuance of digital certificate is only a service which does not involve any sale. 11. Au Contraire, learned Special Government Pleader for State Tax argued and backed the VAT amount demand of the Department on the following grounds: 1. That the software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. In the case of books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. 2. That the difference in the transactions related to non-customized software or customized software is only one that non-customized software transactions is made off the shelf and anyone wil....
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....stomer bills, activation and deactivation of connections and generation of various MIS reports. Under this contract the hardware, standard and customized software are owned by the client and maintained by the petitioner for support of uninterrupted services to the client. The hardware and software are always under the effective control and possession of the client. The relevant portions of the agreement between M/s. Tata Teleservices Ltd., M/s. Tata Teleservices Ltd. (Maharashtra) and Tata Consultancy Services Limited is produced below for ready reference: "THIS AGREEMENT made and entered into at New Delhi this the 13 day of September, Two Thousand and Five BY AND BETWEEN TATA TELESERVICES LIMITED, a Company incorporated under the Companies Act, 1956, having its Registered Office at 10th Floor, Jeevan Bharati, 124, Connaught Circus, New Delhi 110 001 and Its Corporate Office at Paville House, Veer Savarkar Marg. Prabhadevi, Mumbai 400 025 (hereinafter individually referred to as "TTSL" which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and permitted assigns); TATA TELESERVICES (MAHARASH....
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....ables" shall mean and include Services and all other items to be supplied by the Contractor to the Customer under this Contract and more fully set forth in Attachment 1 (IT Oursourcing Framework version 1.0). xxx "Services" shall mean end-to-end IT support which includes project management, consultation, training, installation, maintenance, specifications for site preparation, operations support and other services to be provided to the Customer under this Agreement and as detailed in the clause 2.1. xxx 2.0 SCOPE 2.1 This Agreement establishes the firms and conditions applicable to the provision of Services by the Contractor in accordance with the scope of work as set forth in the Attachment 1 (IT Outsourcing Framework version 1.0) hereunder, pursuant to which the Services contemplated herein are provided by the Contractor and availed by the Customer during the Term (clause 4.0). 2.2 The Contractor shall manage, maintain and enhance all the IT activities and take over the existing IT manpower from the Customer as contemplated in Attachment 5 (IT Manpower of TTSL & TTML being Transferred to TCSL). The indicative Inclusions and ex....
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....e course of performing the Services shall vest in Contractor. 11.3 The Contractor shall not use the Custom Developed Systems and all Customer specific business methodologies and confidential information of the Customer for providing services to any competitor (competitor here means and includes all telecommunication service providers) of the Customer in Ind. 11.4 Where such Intellectual Property created in accordance with clause 11.2 includes software, designs, documentation or other property subject to copyright, the Contractor hereby grants to the Customer a perpetual, non-exclusive and paid up right and license to use such Intellectual Property in India In connection with the utilization of the Services provided hereunder. 11.5 The Contractor acknowledges and agrees that all Intellectual Property of the Customer and its licensors in respect of all material or information made available by the Customer to the Contractor in connection with or for the purposes of the Services shall remain vested in the Customer or its licensors. 21.0 OTHER GENERAL PROVISIONS xxx 21.4 Exclusivity - The Contractor shall be free to do similar busin....
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....lict in any of the mutually agreed terms and conditions contained in this Agreement and the said proposal and correspondences, the terms of this Agreement shall prevail. xxx Terms & their Meanings xxx Product refers to the Oracle e-Business suite R12 version xxx Project means the broad outline of the scope of services and implementations which TCS shall undertake under this Agreement as per the agreed Scope of Services, as in Schedule - A attached. 16. We now refer to Section 65(104c) under Chapter V of Finance Act, 1994 which defines "support services of business or commerce" as services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing. The definition of 'business support services' is extracted he....
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.... Services". It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service. Definition of support services of business or commerce gives indicative list of outsourced services." 18. It is further observed that the software which is developed is useful only to the particular customer for whom the development is carried out on 'work for hire' basis and it cannot be sold to any other person. Rather as and when the development is carried out, the buyer acquires ownership right over the customized software and it cannot refuse to pay for the activity of customization. Therefore, the activity of development of customized / custom made software by the petitioner for its clients / customers is a pure service contract and the petitioner does not possess any ownership right over the customized software, and merely if a contract includes development of customization of software, it does not automatically mean that there is a transfer of title. 19. The High Court of Andhra Pradesh in the case of Tata Consultancy Services vs. State of Andhra Pradesh (1997) 105 STC 421 categorically held that....
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....wever, we find no error in the High Court holding that branded software is goods. In both cases, the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed, etc. Thus, even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this aspect and express no opinion thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is a service contract may arise." 21. Having regard to the aforesaid discussion and the terms of the agreements extracted hereinabove, we are of the considered opinion that the transactions in question, both in relation to development of custom-made / customized software and in relation to issuance of Digital Signature Certificates, do not constitute a "sale" so as to attract levy of Value Added Tax under the TGVAT Act, 2005. Insofar as the first question is concerned, it is evident from a plain reading of the agreements that the petitioner does not, at any point, acquire ownership or title over the software developed by it. The intellectual property either vests in the cu....