2005 (10) TMI 527 - Other - Service Tax

Summary

Issues Involved:
1. Whether the acquisition and subsequent customisation of software should be considered a single supply or multiple supplies for VAT purposes.
2. Whether such a supply should be classified as a supply of goods or services.
3. Determination of the place of supply for VAT purposes.

Detailed Analysis:

Issue 1: Single Supply vs. Multiple Supplies
The core issue is whether the provision of standard software and its subsequent customisation should be regarded as two distinct supplies or a single supply for VAT purposes. The Court emphasized that the extent of a transaction is crucial for identifying the place of taxable transactions and applying the correct tax rate or exemptions. According to the Court's case-law, the nature of the transaction must be examined to determine if there are multiple distinct supplies or a single supply. The Court noted that a transaction comprising a single economic supply should not be artificially split, as this would distort the VAT system. The essential features of the transaction must be ascertained to determine whether the taxable person is making several distinct principal supplies or a single supply.

The Court concluded that the economic purpose of the transaction between FDP and Levob was the supply of functional software customised to Levob's requirements. The supply of the basic software and its customisation formed part of a single economic transaction. The fact that separate prices were stipulated for the supply of the basic software and its customisation was not decisive. The Court held that such supply and customisation of software are to be regarded as forming a single supply for VAT purposes.

Issue 2: Classification as Supply of Goods or Services
The next issue was whether this single supply should be classified as a supply of goods or services. The Court stated that it is essential to identify the predominant elements of the supply. The importance of the customisation, its extent, duration, and cost were relevant factors. The Court found that the customisation of the software was of decisive importance in enabling Levob to use the software. Therefore, the customisation predominated, making the single supply a supply of services within the meaning of Article 6(1) of the Sixth Directive.

Issue 3: Place of Supply for VAT Purposes
The final issue was the determination of the place where the single supply of services is deemed to take place for VAT purposes. Article 9 of the Sixth Directive provides rules for determining the place of supply. Article 9(1) lays down a general rule, while Article 9(2) sets out specific instances. The Court noted that Article 9(1) does not take precedence over Article 9(2), and each situation must be examined to see if it falls within the specific instances mentioned in Article 9(2).

The national court was uncertain whether the transaction should be classified under Article 9(2)(e), third indent, which covers "services of consultants, engineers, consultancy bureaux, lawyers, accountants and other similar services, as well as data processing and the supplying of information." The Court held that the customisation of software is likely to be carried out by engineers or similar professionals. Therefore, such a service falls under the services carried out by engineers or those similar to the activity of an engineer. Consequently, Article 9(2)(e), third indent, applies to a single supply of services performed for a taxable person established in the Community but not in the same country as the supplier.

Conclusion
1. Single Supply: The acquisition and subsequent customisation of software are to be regarded as a single supply for VAT purposes.
2. Supply of Services: This single supply is to be classified as a supply of services where the customisation predominates.
3. Place of Supply: Article 9(2)(e), third indent, of the Sixth Directive applies to such a single supply of services performed for a taxable person established in the Community but not in the same country as the supplier.