Service Tax cannot be levied on Sale of Software in CD Form as VAT is already Charged: Supreme Court [Read Judgment]

A two-judge bench of the Supreme Court has held that the sale of software in CD/DVD form cannot be subject to service tax under the provisions of the Finance Act, 1994 as the same is already subject to VAT.

A bench comprising Justice Abhay S Oka and Justice P B Pardiwala was considering a bunch of appeals against the orders of the CESTAT. The assessee sold antivirus software in the CD form i.e., as a “packaged software or canned software” both indigenously by remitting appropriate VAT or exporting the same. The service tax department observed that the activities of the appellant herein came within the ambit of the Information Technology Software Service as defined under Section 65(105)(zzzze) of the Act 1994.

Mr. Aravind P Datar , the counsel who appeared for the assessee, held that the Tribunal rightly rejected the contention of the revenue that the antivirus software was interactive. Mr. Datar further contended that the Tribunal rightly held that a programme could be said to be interactive only when it involves the user to have an exchange of information or when there is action and communication between the user and the software.

The bench held that once a lump sum has been charged for the sale of CD (as in the case on hand) and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided.

“We are of the view that the artificial segregation of the transaction, as in the case on hand, into two parts, is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put on the CD is “goods”, then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to “deemed sale” which would not attract service tax,” the Court said.

Allowing the appeals by the assesses, the Apex Court also referred to the decision in the case of M/s Infotech Software Dealers Association v. Union of India, wherein the challenge was to the validity of Section 65(105)(zzzze) levying service tax on the information technology software service.

To Read the full text of the Judgment CLICK HERE

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