The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) observed that software in hardware constitutes the sale of goods, and the tribunal quashed the service tax demand.
The issue at hand was an appeal initiated by Advanced Sys Tek Private Limited challenging the imposition of service tax.
The appellant, Advanced Sys Tek Pvt Ltd, a supplier of batch controller flow measuring instruments, argues that bought-out software, like Oracle/MS Windows, supplied on a medium constitutes “goods” and is not subject to service tax. They contend that, since they pay Central Excise duty and CST/VAT on sold goods, the software should be treated similarly. This report assesses the appellant’s stance in accordance with legal provisions and precedents.
Appellant’s counsel, Mr. Saurabh Dixit, contends they’ve paid Central Excise duty and CST/VAT on goods sales, including their developed Smart Terminal Software (STM) with service tax. They occasionally supply standard software, arguing it’s exempt from service tax as CBEC considers software on a medium as “goods.” Legal provisions and precedents support this stance.
The appellant’s detailed defense brings to light their procedural adherence, emphasizing that the supplied goods are predominantly in the form of “goods,” subject to VAT. The argument seeks to establish that the inclusion of bought-out software in the valuation for service tax is unwarranted, given their standardized nature and essential role in the overall functionality of the supplied system.
The counsel for the Respondent, Mr. R.R. Karuppu, argued that Section 65B of the Act, 1994, redefined “service,” explicitly excluding certain activities like the sale of goods. The counsel analyzed Section 66E, listing declared services, highlighting specified activities such as renting immovable property, construction, and temporary transfers of intellectual property as declared services.
The counsel emphasized the nature of software sales, distinguishing between “canned software” and “uncanned software” (branded and unbranded). It clarified that even the sale of software, when supplied in a tangible medium, constitutes a sale of goods. The counsel, drawing on precedents, concluded that the sale of software in a tangible medium constitutes the sale of goods, not a service. It rejected the notion of artificially segregating the transaction into the sale of goods and provision of services.
The two-member bench of the tribunal, comprising Mr. Ramesh Nair (member – judicial) and Raju (member – technical), concluded that in the realm of business, the appellant, specializing in batch controller flow measuring instruments, asserts that purchased software, such as Oracle/MS Windows, delivered on a medium, should be deemed “goods” exempt from service tax.
Their argument draws on the parallel of paying Central Excise duty and CST/VAT on tangible goods. This report delved into the evaluation of the appellant’s position, considering legal provisions and past precedents.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
