In a recent case, the Bangalore bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service tax cannot be demanded on sale of goods where Value Added Tax ( VAT ) already paid.
Tally (India) Pvt Ltd , the appellant is the distributor for marketing and installation of tally software on behalf of seller M/s Tally Solution FZ LLC Dubai, who hold the intellectual property right and copy rights.
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The product alone is transferred to the Appellant. Copy right of the tally software is with the seller. The goods are imported in both physical and downloaded forms and sold to the customers. Appellant is also upgrading the software.
While carrying out all these activities Appellant were paying customs duty on as well as VAT, on sale of goods. Alleging that the activity carried out by the Appellant amounted to taxable service, Revenue issued a Show Cause Notice demanding service tax of Rs 12,04,76,672/-, for the period from 16.05.2008 to 06.07.2009, along with interest and penalties.
It was alleged that the appellants are liable to pay service tax on the Information Technology Software (ITS Services) rendered by them and import of software received by them. Adjudicating Authority, vide impugned order confirmed the demand of Rs 12,04,76,672/- along with interest and penalty of Rs 200/- per day or at the rate of 2% of the Service Tax per month under 76 and penalty of Rs. 1000/- under 78 of Finance Act,1994.
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It was submitted that since the activity undertaken by the Appellant is sale of tally accounting software and not that of rendering any service. Ld Counsel draws our attention to the copy of sale invoices and copy of VAT returns evidencing payment of applicable VAT/CST.
As regarding the issue on merits, reliance of the AR on the judgment of the Apex Court in the matter of Idea Mobile Communication, the facts are different from the Appellant’s case. In the above matter, the Tribunal held that service tax is not sustainable as sale tax paid on the sim cards on. However, the High Courts concluded that service tax payable is as much as Sim cards having not intrinsic value and it is supplied for the customer for providing mobile services.
The two member bench of P. Anjani Kumar, Member (Technical) and P.A. Augustian, Member (Judicial) observed that the software imported and sold by the Appellant is import and sale of goods and is not exigible to service tax.
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Regarding demand against upgradation of software, as per the decision of the Supreme Court in the matter of CST vs. M/s Quick Heal Technologies Ltd, once lumpsum has been charged for the sale of CD as involved in present appeal and sale tax has been paid thereon, Revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that updates are being provided.
It was observed that once Appellant had paid VAT on the sale of goods, service tax cannot be demanded on such sale of goods. The bench set aside the impugned order and allowed the appeal.
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