2011 (10) TMI 568 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the petitioner's transactions with Bangalore-based companies constitute the sale of software in the course of inter-State sales attracting tax under the Central Sales Tax Act, 1956.
2. Whether the software, if sold, was developed and sold in Bangalore and not in the course of inter-State sales, making the levy of tax under the Act impermissible.
3. Whether the matters should be remitted back to the assessing authority for fresh assessments considering all the contentions raised by the petitioner.

Issue-wise Detailed Analysis:

1. Sale of Software in Inter-State Sales:
The primary contention raised by the petitioner was that their business transactions with Bangalore-based companies did not constitute the sale of software in the course of inter-State trade. The petitioner argued that it provided only software services by deploying personnel at the client companies' business places in Bangalore, and there was no sale of software on any media or through any other mode. The assessing authority, however, concluded that the petitioner developed and delivered software programs to Texas Instruments (India) (P) Ltd. (TI) in the course of inter-State sales, based on the Master's Software Development Agreement (MSDA) and work orders. The petitioner contested this, asserting that the services provided did not involve the transfer of software/goods as defined under the APVAT Act.

2. Development and Sale of Software in Bangalore:
The petitioner contended that even if software or goods came into existence during business transactions, they must be deemed to have come into existence at the client companies' business places in Bangalore, belonging to them under the terms of agreements. Therefore, there was no movement of software/goods from Andhra Pradesh to Karnataka, making the levy of tax under the Act impermissible. The assessing authority did not adequately address this contention, nor did it provide clear reasoning for considering the items developed as software.

3. Remand for Fresh Assessments:
The court observed that the assessing authority did not consider the matters in their proper perspective and failed to provide clear reasoning for its conclusions. The appellate authority also did not address the issues adequately. The court noted that the petitioner's services were subjected to service tax by the Central Government, an aspect not considered by the assessing authority. Given the shortcomings in the assessment orders, the court decided to set aside the impugned assessment orders and remit the matters back to the primary assessing authority for fresh assessments in accordance with law, considering all materials and contentions raised by the petitioner.

Conclusion:
The court allowed both writ petitions, set aside the impugned assessment orders, and remitted the matters back to the second respondent for fresh assessments. The assessing authority was instructed to proceed without being influenced by the observations made in this order and to consider all aspects, including the petitioner's case law and contentions. The court did not express any opinion on the merits of the matter, emphasizing the need for a detailed examination by the assessing authority. No costs were imposed, and the writ petitions were disposed of accordingly.