Setback for Infosys: CESTAT Rules Updates and Upgrades Not Goods, Service Tax Payable on Full ATS Invoice Value [Read Order]
CESTAT held that Infosys must pay service tax on the full ATS invoice value, as software updates and upgrades are not treated as goods
![Setback for Infosys: CESTAT Rules Updates and Upgrades Not Goods, Service Tax Payable on Full ATS Invoice Value [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/04/Infosys.jpg "Setback for Infosys: CESTAT Rules Updates and Upgrades Not Goods, Service Tax Payable on Full ATS Invoice Value [Read Order]")
The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that Infosys Technologies Ltd. is liable to pay service tax on the full value of its Annual Technical Support (ATS) invoices, ruling that software updates and upgrades provided under ATS do not qualify as “goods”. Infosys, the appellant, had entered into software support agreements with banks...
The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that Infosys Technologies Ltd. is liable to pay service tax on the full value of its Annual Technical Support (ATS) invoices, ruling that software updates and upgrades provided under ATS do not qualify as “goods”.
Infosys, the appellant, had entered into software support agreements with banks like ICICI, under which it provided services including technical consultation, error correction, and software updates. The company discharged service tax on only 25% of the invoice value, arguing that the remaining 75% represented a deemed sale of software updates, on which VAT was paid.
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The department found that updates and upgrades were provided free of cost and issued a show cause notice demanding service tax on the full invoice value for the period February 2007 to March 2009.
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The appellant’s counsel argued that the supply of updates involved the transfer of the right to use goods under Article 366(29A) of the Constitution, and that only the service portion was taxable. Infosys also sought abatement under Notification No. 12/2003-ST.
The department countered that there was no consideration for the updates and upgrades, making it a pure service contract. The tribunal agreed with this view, citing the Supreme Court’s rulings in BSNL and Idea Mobile, and held that the entire ATS fee was subject to service tax. The tribunal also ruled that Infosys could not claim abatement, as no documentary evidence of material value was provided.
The two-member bench comprising Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) examined the ATS agreement and found that the nature of updates and upgrades provided did not support the claim of sale or transfer of goods. The bench rejected the appellant’s claim for abatement under Notification No. 12/2003-ST, finding no evidence of a separate value for goods as required under the notification.
The appeal was partially allowed. The service tax demand was upheld for the normal period, while extended period liability and penalties were set aside.
To Read the full text of the Order CLICK HERE
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