The Customs Excise Service Tax Appellate Tribunal (CESTAT) held that the Quick Heal Antivirus software is deemed goods but whether the transaction would be sale or service, would be depending upon the terms of the agreement.
The Appellant is engaged in the business of Research and Development of Antivirus Software under the brand name ―Quick Heal.
This Quick Heal Antivirus software was, therefore, sold by the aforesaid manufactures to the Appellant on payment of VAT. They were thereafter transferred by the Appellant to various Sales Offices of the Appellants from where the ultimate sale took place on payment of applicable VAT in the respective States.
The Appellant claimed that this activity was initially undertaken from Pune by sending the Master CD to the Replicators like M/s Sagarika Acoustronics Pvt. Ltd. and M/s Moser Beer India Ltd., who replicated the CD and supplied them to various branches/ sales offices of the Appellant where the CDs were packed in boxes bearing MRP and sold after pasting a sticker bearing the license/ personal key number.
The Appellant paid Central Excise Duty on such pre-packaged Antivirus Software. The Jurisdictional Central Excise Authorities at Pune, however, formed a view that each of the Sales Offices where the Software was packed had to take separate registration and pay Central Excise duty from each of the Sale Offices situated in different parts of the country and not from the main office at Pune.
The Appellant, therefore, shifted the aforesaid activity to Baddi (Himachal Pradesh) and Rudrapur (Uttarakhand).
The CESTAT observed that the end-user was provided with a temporary/ non-exclusive right to use the Antivirus Software as per the conditions contained in the End User License Agreement3 and would, therefore, not be treated as a deemed sale under article 366(29A) of the Constitution.
The Order was pronounced by the Tribunal bench comprising of President Gupta and Technical Member Bijay Kumar on an appeal filed by Quick Heal Technologies Limited.
Deemed sales are elaborated as those which are not really “sales” but have been deemed as sales. For instance, leasing and hire purchase transaction works contract, transfer of right to use goods are instances of deemed sales that are taxed under the Sales Tax Act.
Article 366(29A) of the Constitution elaborates as tax on income includes a tax in the nature of an excess profits tax; tax on the sale or purchase of goods includes, a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration.
The Tribunal observed that the Software was held to be goods‘, but whether the transaction would be sale or service, it was held, would depend upon the terms of the agreement.
The Tribunal also stated that the software is goods and whether the transaction would amount to sale or service would depend upon the individual transaction.
While allowing the appeal the bench also added that the transaction in the present Appeal results in the right to use the software and would amount to deemed sale‘ and not possible to accept the contention of the learned Authorized Representative of the Department that the transaction would not be covered under sub-clause (d) of Article 366(29A) of the Constitution.
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