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TMI Blog2021 (3) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... tems. Information Technology Software Service was brought within the purview of taxable service with effect from Finance Act No.2 of 2009 with the introduction of Section 65(53a) and Section 65(105)(zzzze) in the Finance Act, 1994 - In 2009 vide Finance (No.2) Act 2009, the definition of taxable service of Information Technology Service in Section 65(105)(zzzze) of the Finance Act, 1994 was tweaked and amended with effect from 16.05.2008. When a software is copied on a CD or magnetic disk or other forms of transmission, a goods come into existence in such media. The sale of such CD or magnetic disk or in other forms of transmission of the software may license the user to use the software therein. However, there is goods which has come into existence and prima facie it appears the petitioner was liable to tax under the provisions of the Tamil Nadu Value Added Tax Act, 2006 - Therefore, it is for the petitioner establish that it was not engaged in sale of IT software of any Media and that it was providing only taxable service of Information Technology Software Service within the meaning of Section 65(105) (zzzze) of the Finance Act,1994. From a reading of the repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween 01.08.2009 to 31.03.2014 to pay VAT on sale of Information Technology Products (ITP) but had failed to pay tax on such sale. Relevant portion of the statement recorded from the petitioner on 29.11.2013 reads as under: Delivery of software licences are liable to tax under commodity code 2068 i.e., Information Technology Products Part B of First Schedule. We have been charging VAT on software licenses for the period upto 31st July 2009. During the course of VAT audit, it was pointed out by the audit that VAT has been omitted to be paid for the period from 1st August 2009 to 31st March 2014. We have explained to audit that in the Finance Bill, 2009 an amendment was made to Section 65(53a) of Finance Act, 2003 in the definition of Information Technology software the word acquirer was replaced by the word provider with effect from 16th May 2008. After the substitution the provider of information technology software service (ITSS) was brought under service tax purview as against the acquirer of such IT software for the purpose of commercial exploitation including the right to reproduce, distribute and sell. With the introduction of service tax on ITSS, charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice Tax vide a letter dated 03.09.2009 explaining the background and sought for a clarification as to whether the sale of software license in a compact disc or other electronically readable format or over the Internet, whereby the user is permitted to use the software for a specified period and the sale of software license would attract VAT under the provision of TNVAT Act, 2006 when indeed it should have approached the respondent or any senior officer from the Commercial Tax Department as the views sought for was in the context of tax liability under the provisions of TNVAT Act, 2006. 6. The said officer by a letter dated 16.10.2009 bearing reference C.No.IV/16/11/09 STC (Tech.) informed the petitioner that the sale of software license by the petitioner would amount to Information Technology Service as per Section 65(105)(zzzze) of the Finance Act, 1994. 7. Thereafter, by another communication dated 22.10.2009 bearing reference C.No.IV/16/210/2009 SF0203, the petitioner was also informed that the sale of software license by the petitioner will attract service tax with effect from 16.05.2008 to 30.09.2009. The petitioner also informed about the same to the 2nd respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenge to the levy of service tax on the members of said Association who were selling Software products were held liable to pay tax. He submits that this Court held that the transaction would attract service tax under the provisions of the Finance Act, 1994. He refers to the following passage from the aforesaid decision:- On a careful reading of the above, we are of the considered view that when a transaction takes place between the members of ISODA with its customers, it is not the sale of the software as such, but only the contents of the data stored in the software which would amount to only service. To bring the deemed sale under Article 366(29A)(d) of the Constitution of India, there must be a transfer of right to use any goods and when the goods as such is not transferred, the question of deeming sale of goods does not arise and in that sense, the transaction would be only a service and not a sale. 16. The learned senior counsel also drew attention to the decision of the Karnataka High Court in Sasken Communication Technologies Ltd., vs. Joint Commissioner of Commercial Taxes (Appeals)-3, Bangalore, 55 VST 89 (Kar), wherein the Karnataka High Court held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed. (b) The contracts in question are not works contract but contract for service simplicitor. In other words it is not a composite contract, consisting of contract of service and contract of sale of goods. It is an indivisible contract of service only. (c) The impugned order passed by the learned Single Judge and the assessment orders passed by the authorities levying sates tax are hereby set aside. (d) The tax paid by the assessee in pursuance of the interim order passed in the writ petitions is ordered to be refunded to the assessee as it is declared that the assessee is not liable to pay any sales tax at all on the consideration received under the contract. (e) The amount shall be refunded with interest @ 6% within four months from the date of receipt of this order. If the amount is not refunded within four months, the said amount shall carry interest @ 12%. (f) No costs. 17. The learned senior counsel also drew attention to the counter filed by the 4th respondent Commissioner of Service Tax. He submits that the Service Tax Commissioner has reiterated that the transaction was liable to service tax and therefore the petitioner had rightly discharged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Holdings Pvt. Ltd. vs. Commissioner of Commercial Taxes and Ors. (2010) 29 VST 214 (Mad) xvii) Madras Refineries Ltd. Vs. Assistant Commissioner (2010) 28 VST 417(Mad), xviii) Sasken Communication Technologies Ltd., vs. Joint Commissioner of Commercial Taxes (Appeals)-3, Bangalore, (2012) 55 VST 89 (Karn) xix) AGS Entertainment Private Limited vs. Union of India and Others, (2013) 65 VST 88 (Mad) xx) Canon India Private Limited and Ors. vs. State of Tamil Nadu and Ors. 2014 (305)ELT 255 (Mad.) xxi) The State of Karnataka vs. IBM India Private Limited, (2015) 52 GST 1230 ( Karnataka) xxii) JKM Graphics Solutions Private Limited vs. The Commercial Tax Officer, Vepery Assessment Circle, (2017) 99 VST 343 (Mad) xxiii) M/s.C.A.Motors vs. The Commercial Tax Officer, Tiruvarur, 2019- VIL-448-Mad 20. Mr. Mohammed Shafique, learned Additional Government Pleader (Taxes) submits that these writ petitions were premature and were liable to be dismissed. He submits that the challenge in the present cases were to the impugned notices issued under Section 27 of the Tamil Nadu VAT Act, 2006 and therefore the authorities concerned should be given an opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om paying the service tax if the same is otherwise found payable and a liability accrues on the assessee . He says that same reasoning will apply in the facts of the present case. 27. He further submits that the petitioner has given only a sample agreement to demonstrate that no VAT was payable. This according to him is wholly impermissible. He submits that unless the agreements and inviews are submitted no decision can be arrived. He submits that as per the decision of the Hon ble Supreme Court in TELCO v. CCT , (1970) 1 SCC 622 an Assistant Commissioner was expected to look into each transaction in order to find out whether a completed contract of sale had taken place which could be brought to tax. He submits that even an assessing officer was bound to examine each, and every transaction independently and then decide whether it constituted a sale liable to tax under the provisions of the Act or not. He therefore prayed for dismissal of the present writ petitions. 28. I have considered the arguments advanced by the learned Standing Counsel for the petitioner Mr.R.L.Ramani and by the learned Special Government Pleader for the respondents ( taxes). 29. It will be useful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become goods . We see no difference between a sale of a software program on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up.What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction/sale of computer software is clearly a sale of goods within the meaning of the term as defined in the said Act. The term all materials, articles and commodities includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem networking, or any other service primarily in relation to operation of computer systems; 38. In Circular No. 59/8/2003, dated 20.6.2003, the Central Board of Excise and Customs had also clarified that a personal computer or a laptop has been used for providing the service does not, ipso facto , make the service an information technology service . Similarly, the fact that any of the IT services mentioned in the explanation has been used by the service provider as an input service does not automatically make the output service and input service. 39. It further opined that individual service was to be examined with reference to the explanation provided to the definition of business auxiliary service and only such output services which qualify to be IT services in terms of the said explanation shall remain excluded from taxable service under the heading Business Auxiliary Service. 40. Information Technology Software Service was brought within the purview of taxable service with effect from Finance Act No.2 of 2009 with the introduction of Section 65(53a) and Section 65(105)(zzzze) in the Finance Act, 1994. 41. In 2009 vide Finance (No.2) Act 2009, the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Government and was liable to tax at 4% with effect from 1.1.2007 and later at 5% with effect from 12.7.2011 under Entry 68, Part B, I Schedule. 43. For the aforesaid purpose, the Government of Tamil Nadu issued G.O.Ms.3 CT R (B1) dated 1.1.2007 with effect from 1.1.2007. Sl. No. 5 to G.O.Ms.3CT R (B1) dated 1.1.2007 is reproduced below:- 5. IT software of any media. (a) Disc for laser reading systems for reproducing phenomena other than sound or image. (b) Magnetic tapes for reproducing phenomena other than sound or image. (c) other software. (i) on floppy disc or cartridge tape. (ii) on disc or on CD ROM. (iii) on other media. (d) Recorded and pre-recorded DVDs and CDs. 44. Thus, Information Technology Product was attracted to IT software of any media on :- (i) floppy disc or cartridge tape;or (ii) disc or on CD ROM;or (iii) other media. 45. IT software of any media as enumerated above were liable to tax under the provisions of the Tamil Nadu Value Added Tax, 2006 under entry 68, Part B of the First Schedule of the Act read with G.O. Ms. 3 CT R (B1) dated 1.1.2007 with effect from 1.1.2007. Earlier, under Entry 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software license to its customer in a compact disc or other electronically readable format or through Internet. Such sale permitted the user a license to use the software contained therein. 51. The representation of the petitioner on 3.9.2009 to the Central Excise Department indicates that the clarification was sought for as to whether software license in a compact disc or other electronically readable format or over the Internet, whereby its clients/customers are permitted to use the software for a specified period of time and sale of software licenses attracts VAT under the provisions of the Tamil Nadu Value Added Tax Act, 2006. 52. The petitioner ought to have been aware of the decision of the Hon'ble Supreme Court in Tata Consultancy Case referred to supra wherein it was categorically concluded that even uncanned software was goods. Since the issue was left open, as the occasion did not arise before it, the petitioner could have approached the officers of the Commercial Tax Department by explaining the views it entertained. 53. The Asst Commissioner of Central Excise has not compared the taxing entries under the provisions of the Tamil Nadu Value Added T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice tax to save tax the revenue out flow from it. 59. It is quite possible that the petitioner may have also obtained opinions of experts which may have influenced the petitioner to take advantage of the tax regime obtaining a clarification from the office of the fourth respondent was totally uncalled for. 60. However, the aforesaid clarification sans any reasoning. The petitioner appears to have risked to avoid VAT. Therefore, if tax was due, it has to pay such tax to the Commercial Tax Department. 61. The decision of the Division Bench of this Court in Infotech Software Dealer Association versus Union of India [2010] 34 VST 133 which was relied upon by the learned senior counsel for the petitioner in my view is not relevant. The Division Bench there dealt with constitutional validity of the amendment to Section 65 (105) (zzzze) of the Finance Act, 1994 with effect from 16.05.2008. 62. There the challenge was made to the amendment to the above definition of taxable service in section 65(105)(zzzze) of the Finance Act, 1994 as amended by Finance No 2 Act, 2009 which amended sub-clause (v) and (vi) by substituting the word acquiring with providing . 63. The sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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