Software Supplied as Loaded on Medium is to be Treated as Sale Not Service: CESTAT [Read Order]

The Ahmedabad bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that software supplied as loaded on the medium is to be treated as a sale, not a service.

Proceedings were initiated against the appellant Edukite Software Pvt Ltd for non-payment of Service Tax under the head of “Information Technology Software Service”. The revenue issued a notice that the appellant had discharged Service Tax liability in some cases and not in others. The notice stated that the appellant had not discharged their Service Tax concerning services rendered to M/s. Attano Media and Education

Private Limited (which was later taken over by M/s. HCL Info Systems Limited). It was pointed out by the Counsel that the appellant had provided content to M/s. Attano Media and Education Private Limited. The content provided by the appellant was a Software product called ‘Edukite Interactive Curriculum Software’ containing Educational content in Science and Mathematics for students of Classes 10, 11 and 12 studying under the Central Board of Secondary Education (CBSE). The original adjudicating authority had granted the benefit of Small Scale Exemption, however, the balance demand was confirmed by both the original adjudicating authority as well as the first appellate authority.

The appellant pointed out that the Software sold by the appellant is goods and therefore not liable to Service Tax. He pointed out that the agreement with M/s. HCL Info Systems Limited is an agreement for permanent transfer of intellectual property rights which is not covered under Service Tax liability. He pointed out that the entire software is encoded on CD and therefore, it becomes goods and therefore is not liable to Service Tax.

A two-member bench of Mr Ramesh Nair, Member (Judicial) and Mr Raju, Member (Technical) observed that “with software is supplied loaded on a medium then the same is to be treated as sale and not a service. In the instant case, it is not in doubt that software has been supplied loaded as a medium. Therefore it attains the character of goods. Consequently, the demand in the instant case cannot be sustained.”

The CESTAT set aside the impugned order and allowed the appeal.  

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