The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT), Bangalore Bench held that the License fee for use of software in India for the software developed in Germany not taxable under “franchisee service” rather taxable under “Information Technology Software Service”.
The appellants, SAP India are engaged in marketing and licensing of the popular software known as “my SAP” along with other related software products of M/s SAP Aktiengesellschaft Systems, Germany. They do software marketing and licensing, maintenance, consulting, and training services. There is an agreement between the appellant and SAP AG, Germany.
Subject to the terms of the agreement, SAP AG granted to the appellant a non-exclusive license to use, market, sub-license the software, documentation, 3rd party database and 3rd party software to end-users in the territory, as assigned to the appellants, which are/ is predominantly India. In consideration of the above licenses and permissions, the appellant was required to make certain payments to SAP AG, Germany which was mostly from the consideration received from the clients to whom the software was marketed.
In this proceeding, Revenue is seeking to tax such payments made, under provisions of Section 66A of Finance Act, 1994 (reverse charge mechanism), on the basis that the appellant was receiving franchisee service from SAP AG, Germany, and when they were dealing with the clients in India who use SAP software, they were acting as a franchisee of SAP AG, Germany.
The respondent authority has confirmed the demand of service tax on the license fee paid to SAP AG, Germany, for grant of non-exclusive license to use, market, and sub-license the software, third party database, and third-party software to “end-user‟ in the territory, on reverse charge basis under the taxable head “Franchise Services” from April 18, 2006 onwards.
The coram consisting of Anil Choudhary and P. Anjani Kumar observed that the appellant is making payment to SAP, Germany in terms of the agreement between them, noticed hereinabove which is payment towards license fee for use of software by the client in India for the software developed by SAP, Germany and 3rd party database / software and also towards support services for software which is essentially for upgradation of the software and for fixing technical difficulties encountered while using the software.
Therefore, the Tribunal held that the service in question is not taxable under the head “franchisee service‟ rather taxable under Information Technology Software Service. Accordingly, both the appeals are allowed and the impugned orders are set aside.
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