2013 (9) TMI 110 - AAR - Service Tax

Applicability of Service-tax - Sale of software - The issues related to the proposed transactions of the applicant of selling/distributing standard off- the- shelf software and non-customized software products in India - Held that - applicant s views on the various issues have been accepted by the Revenue to be reflecting the correct position in law. Regarding sale of software and games - Held that - (a) The domestic transfer of software on media comes under the purview of manufacture as held by the Hon ble Supreme Court in the case of CIT-V vs. M/s. Oracle Software India Limited, 2010 (1) TMI 9 - SUPREME COURT OF INDIA Therefore, the activity is not covered within the ambit of Service Tax. - (b) The royalty paid by the Applicant is very much taxable under the reverse charge mechanism. - (c) The TPJW located overseas are going to manufacture software on media on behalf of the Applicant and under negative list regime w.e.f. 01.07.2012, manufacture of goods itself comes under the negative list. Further, under Rule 4 of the Place of Provision of Service Rules, 2012, in case service provided in respect of goods that are required to made physically available by the recipient of the service to the provider of the service or to a person acting on behalf of the provider of service, in order to provide the service, the PPS shall be the location where the services are performed. PKC/WAU and CAL - Held that - Supply of PKC and WAU are service as held by the Hon ble Supreme Court in Idea Mobile Communications Ltd. Vs. CCE &C, Cochin, 2011 (8) TMI 3 - SUPREME COURT OF INDIA and accordingly, liable to service tax. Similarly, domestic supply of CALs is incidental to the rendering of telecommunications service as held in the same case i.e. Idea Mobile Communications Ltd Vs CCE& C, Cochin. It would accordingly be liable service tax. VL Model (Volume Licensing) - Held that - (a) Under VL, the software is to be supplied by way of electronic download of software, which involves provision of service and hence taxable. - (b) Applicant has granted license to run Microsoft software under the VL program and supply of software is a service and hence liable to service tax. - (c) As in the case software on media, transfer of VL media will not attract service tax. Loyalty programme - Held that - The transactions under the Loyalty programs which can be a part of contract between the Applicant and its foreign holding company/companies are covered under the reverse charge mechanism and are liable to service tax. The interpretation projected by the applicant accepted.

Summary

Issues Involved:
1. Applicability of Service Tax on Domestic Transfer of Software/Games on Media.
2. Applicability of Service Tax on Royalty Payable by Applicant under the Negative List Regime.
3. Applicability of Service Tax on Charges Paid to Third Party Job Workers (TPJW) under Reverse Charge Mechanism.
4. Applicability of Service Tax on Electronic Download of Software in Volume Licensing (VL) Model.
5. Applicability of Service Tax on Domestic Transfer of VL Software Licenses.
6. Applicability of Service Tax on Domestic Transfer of Billable VL Media.
7. Applicability of Service Tax on Loyalty Programs.

Detailed Analysis:

1. Applicability of Service Tax on Domestic Transfer of Software/Games on Media:
The applicant contended that the domestic transfer of software/games on media does not constitute a provision of service and hence should not attract service tax. The Revenue agreed, referencing the Supreme Court's decision in CIT-V vs. M/s. Oracle Software India Limited, which held that such transfers fall under the purview of manufacture and are not subject to service tax.

2. Applicability of Service Tax on Royalty Payable by Applicant under the Negative List Regime:
The applicant argued that the royalty payments for rights to manufacture, replicate, license, and sell Microsoft software should be considered a service under the negative list regime and thus liable to service tax. The Revenue concurred, affirming that the royalty payments are taxable under the reverse charge mechanism.

3. Applicability of Service Tax on Charges Paid to TPJW under Reverse Charge Mechanism:
The applicant maintained that since the manufacturing services by TPJW are performed outside India, the place of provision of service should be outside India as per Rule 4 of the Place of Provision of Service Rules, 2012. Consequently, these charges should not attract service tax under the reverse charge mechanism. The Revenue agreed, noting that the manufacturing of goods falls under the negative list and the place of provision is where the services are performed, i.e., outside India.

4. Applicability of Service Tax on Electronic Download of Software in VL Model:
The applicant accepted that electronic download of software amounts to a service and is therefore liable to service tax. The Revenue supported this view, stating that the electronic supply of software under the VL model involves the provision of a service and is taxable.

5. Applicability of Service Tax on Domestic Transfer of VL Software Licenses:
The applicant contended that the supply of software licenses under the VL program involves the provision of a service and is subject to service tax. The Revenue agreed, indicating that the transfer of software licenses, whether physical or electronic, constitutes a service and is liable to service tax.

6. Applicability of Service Tax on Domestic Transfer of Billable VL Media:
The applicant argued that the transfer of billable VL media should not attract service tax. The Revenue concurred, stating that similar to software on media, the transfer of VL media does not constitute a service and is not subject to service tax.

7. Applicability of Service Tax on Loyalty Programs:
The applicant asserted that transactions under loyalty programs are tantamount to providing a service and should be liable to service tax. The Revenue agreed, noting that such transactions, which are part of contracts between the applicant and its foreign holding companies, fall under the reverse charge mechanism and are taxable.

Conclusion:
The Authority for Advance Rulings accepted the applicant's interpretations on all issues, aligning with the Revenue's concurrence on the correct legal position. The questions posed were answered in favor of the applicant's submissions, and the application was disposed of accordingly.