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TMI Blog2023 (12) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... CAL) Shri Saurabh Dixit, Advocate appeared for the Appellant Shri R.R. Kurup, Superintendent (Authorized Representative) for the Respondent ORDER This appeal has been filed by Advanced Sys Tek Private Limited against demand of service tax. 2. Learned counsel for the appellant pointed out that they are engaged in the business of supplying batch controller flow measuring instruments . Appropriate Central Excise duty on manufactured components cleared as well as appropriate CST/VAT on entire goods sales made, was discharged by the appellant. The appellant had developed Smart Terminal Software (STM) for comprehensive terminal automation which they had supplied for operating the above equipment. The appellants were also, on occasions required to supply bought out standard softwares such as Oracle/ MS Windows etc to be installed on the peripherals supplied as part of the above system. The appellants used to invariably pay applicable CST/VAT on sale of such software and no service tax was paid thereon. Since the such software was invariably supplied on appropriate medium i.e. hard-drives and other equipment, constitutes goods , and therefore, the same does not att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party. The Revenue made the demand of service tax on the entire value of AST-STM software. The AST-STM software consisted of certain software developed by the appellants and also contended bought out software namely, STM, Oracle, OS, TFMS, PLC. The appellant agreed with the objection in so far as related to the AST-STM software, however they paid the tax after excluding the value of bought out software listed above. The Revenue was of the view that the appellant are required to pay service tax on the entire value including the bought out softwares. The appellant had vide their letter dated 22.05.2015 conveyed their acceptance for partial agreement with the audit objection. The current issue relates to includibility of the value of the bought out software in the value for the purpose of discharge of service tax. It is also noticed that no separate order for the bought out softwares was placed by the clients and no separate invoice for the bought out softwares was made by the appellants. 7. The appellants also claimed that Rule 5 of the Service Tax (Determination of Value) Rules 2006 was declared ultravirus by an order of Hon ble High Court of Delhi in the case of Intecontinental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... User Interface/ database and Operating environment, under which the STM software operated. In other words, this is at par with providing for eg. Windows OS on the computer by loading it, so that the customer can view what exactly the STM software is doing and operate programmes such as MS word, MS Excel etc. As such, by its very nature, in most cases it is necessary that such bought out softwares are pre- loaded in the computers/system, hard disc, CD etc. and after FAT supplied from our client's factory. This assertion of the appellant has not been doubted in the impugned order anywhere. In this background, the decision of Hon ble Apex court in the case of Quickheal Technologies Ltd. reported in 2022 (63) GSTL 385 (SC), becomes relevant. In the said decision Hon ble Apex court has observed as follows: RELEVANT PROVISIONS OF LAW 35 . The New definition of the term service has been given under the clause 44 of Section 65B of the Act 1994 which reads as follows : service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) an activity which constitutes merely, (i) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale within the meaning of Clause (29A) of Article 366 of the Constitution. 37 . Clause (29A) of Article 366 of the Constitution of India defines the deemed sale. This clause reads as follows: tax on the sale or purchase of goods includes (29A) - (a) a tax on the transfer, otherwise than in pursuance of a contact, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) invoked in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intox ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem of payment by instalments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity. 40 . Thus, the declared services include the services of renting of immovable property, works contract, hire purchase/instalment payment system, supply of food/drink, etc. In other words, under the Constitution what is related to deemed sale is also covered under the deemed service as per the above Section. 41 . The Transfer of Right to use goods for case, deferred payment or value consideration is considered as deemed sale under sub - clause (d) of Article 366(29A) of the Constitution of India. Right to use of tangible goods service has also been brought under the service tax net by the Finance Act, 2008, with effect from 16.05.2008 vide notification No. 18/2008ST, dated 10.05.2008 whereby taxable service has been defined under Section 65(105)(zzzzj) of the Act 1994 to mean as: Any services provided or to be provided, to any person, by any other person in relation to supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, transferred, delivered, stored, possessed, etc. The software programs have all these attributes . At this stage it must be mentioned that Mr Sorabjee had pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act, these items being moveable goods, covered by Section 2(22)(e) of the Customs Act. What was transferred was technical advice on information technology. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, the supply is of a chattel. It is in respect of the drawings, designs, etc. which are received that payment is made to the foreign collaborators. The question whether the papers or diskettes etc. containing advice and/or information are goods for the purpose of the Customs Act was answered in the affirmative. This Court clearly held that the intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable . When technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof . It was concluded so in paragraph 46: 46. The concept that it is only chattel sold as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. In the case of subclause (d), the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use the goods. In our view, therefore, on a plain construction of subclause (d) of Clause (29A), the taxable event is the transfer of the right to use the goods regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. And further contract in respect thereof is also required to be executed. Given that, the locus of the deemed sale is the place where the right to use the goods is transferred. Where the goods are when the right to use them is transferred is of no relevance to the locus of the deemed sale. Also of no relevance to the deemed sale is where the goods are delivered for use pursuant to the transfer of the right to use them, though it may be that in the case of an oral or implied transfer of the right to use goods, it is effected by the delivery of the goods. 45 . While holding that in a contract for the transfer of the right to use goods, the taxable event would be the execution of the contract for delivery of the goods, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io frequencies are not goods within the meaning of the word either in Article 366(12) or for the purpose of Article 366(29A)(b) . Emphasis was laid on the fact, whether there are any deliverable goods or not. If there are no deliverable goods in existence, like the one in BSNL (supra), there is no transfer of user under Article 366(29A)(b) at all. 47 . Justice Dr. AR. Lakshmanan, in his separate but concurring judgment, highlighted the following attributes in para 97 of the judgment to constitute a transaction for the transfer of right to use the goods: xx xx xx 97. a. There must be goods available for delivery; b. There must be a consensus ad idem as to the identity of the goods; c. The transferee should have a legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefor should be available to the transferee; d. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute viz. a transfer of the right to use and not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) Article 366(29A)(d) of the Constitution implies tax not on the delivery of the goods for use, but implies tax on the transfer of the right to use goods. The transfer of the right to use the goods contemplated in subclause (d) of clause (29A) cannot be equated with that category of bailment where goods are left with the bailee to be used by him for hire. (e) In the case of Article 366(29A)(d) the goods are not required to be left with the transferee. All that is required is that there is a transfer of the right to use goods. In such a case taxable event occurs regardless of when or whether the goods are delivered for use. What is required is that the goods should be in existence so that they may be used. (f) The levy of tax under Article 366(29A)(d) is not on the use of goods. It is on the transfer of the right to use goods which accrues only on account of the transfer of the right. In other words, the right to use goods arises only on the transfer of such right to use goods. (g) The transfer of right is the sine qua non for the right to use any goods, and such transfer takes place when the contract is executed under which the right is vested in the lessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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