2014 (12) TMI 459 - AT - Service Tax

Sale of software - packaged software were imported from the replicator or the foreign supplier - Intellectual Property Right Services - Payment made to Microsoft - Held that - Commissioner has held that Microsoft has copyright of the software and only right to use the software by end user by way of license agreement with copyright protection for Intellectual Property Service copyright is exempted to levy of service tax. We further find that it is a computer software programme which is given on commercial rental to the applicants by M/s. Microsoft. In these circumstances prima facie we are of the view that the applicant is covered as a copyright holder and not required to pay service tax under the category of Intellectual Property Right Services. Therefore for the period prior to 16.5.2008 applicant is not required to pay service tax. For the period post 16.5.2008 we find that as observation made by this Tribunal in the case of Infotech Software Dealers Association (2010 (8) TMI 13 - HIGH COURT OF MADRAS) and has held by the Hon ble Apex Court in the case of Tata Consultancy Services reported in 2004 (11) TMI 11 - Supreme Court the transaction of sale of computer software is a sale of goods. Further in the case of Suzlon Energy Ltd. Vs. Commissioner of Central Excise Pune-III 2014 (8) TMI 96 - CESTAT MUMBAI wherein this Tribunal observed that the transaction was treated as supply of goods for the purpose of Customs duty therefore transaction cannot be treated as supply of service and levy of service cannot be made on the entire value of transaction once again. In these circumstances we are of the view that the sale of software is only a sale of goods and the service tax cannot be levied. Further we find merit in the contention of the Ld. Counsel for the applicant that right to use software is given to the end user and the applicant is only an intermediary. Therefore the applicant is not liable to pay service tax. - applicant has made out a case for complete waiver of pre-deposit of entire amount of service tax interest and penalties. Accordingly we waive the requirement of pre-deposit of entire amount of service tax interest and penalties and stay recovery therefore during the pendency of the appeal - Stay granted.

Summary

Issues:
- Liability to pay service tax on royalty under different categories pre and post 16.5.2008.
- Exemption from service tax under Intellectual Property Right Services.
- Classification of right to use software as a service or sale of goods.
- Applicability of service tax on the transaction involving software.

Analysis:
1. Liability to pay service tax on royalty under different categories pre and post 16.5.2008:
The case involved the payment of service tax on royalty by the applicant to M/s. Microsoft Licensing GP, USA. The Revenue contended that service tax was applicable under the category of Intellectual Property Right Services before 16.5.2008 and under Information Technology Software Service post that date. The applicant sought a waiver of pre-deposit at this stage.

2. Exemption from service tax under Intellectual Property Right Services:
The applicant argued that they were not liable to pay service tax under Intellectual Property Right Services for the period before 16.5.2008 as copyright was exempted from this category. The Tribunal found merit in the argument, stating that the applicant was covered as a copyright holder and not required to pay service tax under this category for the mentioned period.

3. Classification of right to use software as a service or sale of goods:
The Tribunal analyzed previous judgments and observed that the sale of software, whether third party or in-house developed, did not fall under Intellectual Property Right Services or Information Technology Software Service. It was deemed as a sale of goods, especially in cases where the software was sold to specific buyers under a brand name. The transaction of right to use software was considered as a sale of goods rather than a service.

4. Applicability of service tax on the transaction involving software:
Post 16.5.2008, the Tribunal held that the sale of software constituted a sale of goods based on previous rulings and observations. The applicant, acting as an intermediary, was not deemed liable to pay service tax as the right to use software was transferred to the end user. Therefore, the service tax could not be levied on the entire value of the transaction involving software.

In conclusion, the Tribunal waived the requirement of pre-deposit for the entire amount of service tax, interest, and penalties, allowing the applicant to stay the recovery during the appeal process. The judgment provided detailed analysis and legal interpretations regarding the liability of service tax on royalty, exemption under Intellectual Property Right Services, classification of software transactions, and the applicability of service tax in such cases.