The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad bench has held that the software activation services cannot be termed as “Business Auxiliary Services” and therefore, not subject to service tax as the assessee already discharged VAT liability in respect of the same.
The appellant, M/s Black Box Ltd was dealing in Electronic and Telecom equipment. Software are embedded in such telecom equipment systems of EPABX. On scrutiny of Balance Sheet of the Appellant it was revealed that Appellant has shown certain amount as “Software Activation” income in Schedule 14. Appellant had collected these charges from their customers in connection with after sales of goods i.e equipment/ software.
The department demanded service tax from the appellants under the category of “ Business Auxiliary Services” under Section 65 of the Finance Act, 1994 under Section 73(1) of the Act along with interest.
On appeal, the first appellate authority held that the Appellant are not only selling the goods of foreign vendor but are also providing after sales services, such as providing right to use certain software by activating such software so that their customers who had already purchased equipments from them could use certain additional features by getting them activated. Thus said activity is covered under business auxiliary service.
The Appellant contended that they had raised invoices for activation as additional charges for RTU features of software. As per the provision of Section 2(23)(d) of the Gujarat Value Added Tax Act and Section 2(g)(iv) of the Central Sales Tax Act 1956 the right to use (RTU) are covered in definition of sale of goods for the purpose of payment of VAT/CST. Hence, Appellant were paying VAT/CST and therefore, the service tax liability on the said services cannot be raised.
Mr. Ramesh Nair, Member (Judicial) and Mr. Raju, Member (Technical) relied on various decisions wherein it was held that the sale of the software program the incorporeal right to the software is not transferred since the copyright of the incorporeal right to software remains with the originator and what is sold is a copy of the software. It was further held that the original copyright version is not the one which operates the computer of the customer but the physical copy of that software which has been transferred to the buyer.
“The law as to whether the software is goods or not is no longer res integra in view of the above dictum of the Apex Court. Hence, in the impugned matter on software activation charges Appellant is not liable to pay service tax,” the CESTAT said.
Allowing relief to the assessee, the CESTAT held that “the amount collected by the Appellant from their customers against as “activation charges” of equipment/ software features are covered under the activity of sales of goods and not covered under the provisions of “Service” as defined in the Act. Therefore, we don’t find any merits in impugned order.”
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