2020 (11) TMI 83 - HC - Service Tax

Classification of services - Information Technology Software Service - Anti Virus Software - petitioner submitted that Anti Virus Software do not fall within the ambit of taxable service, as defined under Section 65 (105) (zzzze) of the Act - HELD THAT - The Anti Virus Software runs on computers, mobile phones, data processing machine, sensors, cameras and other such equipments. They provide interactions with the user under the EULA, by providing interactions, configurations and other screens or pages. They are invariably provided to the market in machine readable, executable or binary compilations and exists with the creator or producer in source code or object code forms. They are representation of instructions that include data, sounds and images. The petitioner s Anti Virus Software in CD forms squarely falls within the essential features of the definition of the Information Technology Software . In other words, all essential conditions stipulated under the definition of Information Technology Software are the essential and salient features of an Anti Virus Software also. If that be so, the submissions of the petitioner that an Anti Virus Software is outside the ambit of the definition of an Information Technology Software is not based on any Intelligible Differentia . The petitioner has failed to substantiate that an Anti Virus Software will not fall within the ambit of the definition of Information Technology Software - Since the petitioner is liable to pay service tax but had not discharged the service tax liability, the provisions of Section 68 of the Finance Act, 1994 r/w. Rule 6 of the Service Tax Rules has been violated and therefore, there are no infirmity on the part of the Department, in imposing interest under Section 75(i) along with penalty under Section 76(1) of the Finance Act, 1994. Petition dismissed - decided against petitioner.

Summary

Issues:
Challenge to demand of service tax for Anti Virus Software under Section 73(1) of the Finance Act, 1994. Interpretation of whether Anti Virus Software falls within the definition of 'Information Technology Software' under Section 65 (53a) of the Finance Act, 1994.

Analysis:

Issue 1: Challenge to demand of service tax

The petitioner, engaged in software development, challenged the demand of service tax for Anti Virus Software under Section 73(1) of the Finance Act, 1994. The petitioner argued that they do not provide taxable service as defined under Section 65 (105) (zzzze) of the Act, hence not required to register with the Service Tax Department. The petitioner contended that Anti Virus Software does not fall under taxable service and has discharged VAT on its sale, emphasizing it as a sale of goods. The respondent, citing a previous Madras High Court decision, argued that Anti Virus Software qualifies as 'Information Technology Software' and thus is a service subject to service tax.

Issue 2: Interpretation of 'Information Technology Software'

The primary issue was whether Anti Virus Software falls within the definition of 'Information Technology Software' under Section 65 (53a) of the Finance Act, 1994. The Hon'ble Division Bench in a previous case held that when a developer retains copyright and transfers the right to use software, it constitutes a service, not a sale. The court analyzed the definition of 'Information Technology Software' and found that Anti Virus Software meets the essential features of this definition. The court rejected the petitioner's argument that Anti Virus Software is not covered under 'Information Technology Software', citing lack of 'Intelligible Differentia'.

Conclusion:

The court dismissed the Writ Petitions, upholding the demand for service tax on Anti Virus Software. It held that the petitioner failed to prove that Anti Virus Software does not qualify as 'Information Technology Software'. Consequently, the court found no issue with the Department imposing interest and penalty for non-payment of service tax. The judgment reaffirmed the classification of Anti Virus Software as a service subject to service tax, based on the definition of 'Information Technology Software'.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the court's reasoning behind the decision.