Custom, Excise & Service Tax Tribunal
Zoom Technologies (India) Pvt Ltd vs Hyderabad-Ii on 11 September, 2025
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ST/26154/2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench - Court No. - I
Service Tax Appeal No. 26154 of 2013
(Arising out of Order-in-Original No. 03/2013-ST-HYD-III-ADJN (TRF) COMMNR
dt.10.01.2013 passed by Commissioner of Customs, Central Excise & Service Tax,
Hyderabad)
M/s Zoom Technologies (India) Pvt Ltd
8-2-695/E/1, Road No.12, Banjara Hills, ......Appellant
Hyderabad, Telangana - 500 034
VERSUS
Commissioner of Central Excise &
Service Tax, Hyderabad - II
Kendriya Shulk Bhavan, LB Stadium Road,
......Respondent
Basheerbagh, Hyderabad - 500 004 Appearance Shri Narendra Dave, Advocate for the Appellant.
Shri B. Sangameshwar Rao, AR for the Respondent.
Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30361/2025 Date of Hearing: 04.08.2025 Date of Decision: 11.09.2025 [Order per: A.K. JYOTISHI] M/s Zoom Technologies (India) Pvt Ltd (hereinafter referred to as appellant) are in appeal against the Order-in-Original dt.10.01.2013, whereby, a duty of Rs.2,94,67,838/- along with equal penalty under section 78 has been confirmed by the Adjudicating Authority (Impugned Order). The period for demand is 16.05.2008 to 31.12.2010 and the issue is whether service tax is leviable on the products (Anti-Virus Software) received by the appellant from foreign vendors in the category of Information Technology Software Service (ITSS).
2. The brief facts of the case are that the appellants had entered into contract/distribution agreement with (i) M/s Kaspersky Lab UK Ltd, United (2) ST/26154/2013 Kingdom, (ii) M/s Trust Port, Czech Republic and (iii) Netasq, France (foreign vendors). This agreement was for the distribution of Anti-Virus software, where the product/software was belonging to the foreign vendors and they used to transfer a fixed number of keys or Anti-Virus packages to the appellant, who inturn used to have an agreement for distribution/re-sale of product to various buyers in India. The appellants were paying VAT on the sale of said software in India and also by way of abundant caution, they had discharged service tax on such sale.
3. The department felt that the appellants were having a non-exclusive intellectual property right to distribute products to sub-resellers in the territory of India and they were eligible to use vendor's trademarks, service marks or logos solely to promote the products and therefore, in the facts of the case, it was felt that the said service would be falling under the category of 'Information Technology Software Service' (ITSS) and since the said ITSS was being provided by entities located outside India, who were providing right to use information technology software for commercial exploitation in the form of right to distribute and sell information technology software and the said transaction involving right to use information technology software for commercial exploitation would fall under the definition of ITSS under section 65(105)(zzzze)(v) of the Finance Act, 1994. Further, since the taxable services received from outside India by a recipient in India are governed by the provisions of section 66A of the Finance Act read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, the appellants would be considered as provider of service in India.
4. On adjudication, the adjudicating authority, inter alia, felt that the contention of the appellant that the service, per se, is not liable to service tax as the assessee is only an exclusive distributor for Anti-Virus products in India and that the software sold were goods and hence, not a service, was not correct in view of the fact that software has been received from outside India and therefore, in terms of section 66A, they are liable to pay service tax on services received by them under section 66A, keeping in view the definition of ITSS and there being no exemption from service tax for import of ITSS prior to 21.12.2010.
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5. Learned Advocate mainly advanced two arguments; firstly, that in terms of various provisions of the agreement governing their foreign vendors and the appellant, the transaction is not that of service and is of sale and hence, not required to pay any service tax. In support thereof, he has relied on the following judgments:
a) CST Vs Quick Heal Technologies Ltd [2022 (63) GSTL 385 (SC)]
b) Sakri IT Solutions Pvt Ltd Vs ADG [2024 (4) TMI 373 (Tri-Del)]
6. Secondly, he submits that the issue is revenue neutral and therefore, there cannot be any intent to evade payment of tax and in view of the same, neither extended period can be invoked nor any penalty can be imposed under section 78.
7. Further, he submits that the department has wrongly understood the nature of transaction between the appellant and the foreign vendors as they had entered into a distribution agreement with M/s Kaspersky Lab UK Ltd and they had no right to use the software for commercial exploitation, whereas, the SCN has been issued on the perception of the department that they had received the right to use the software. He further submits that non-exlusive right to distribute software is different from right to use the software and that the appellant had never received the right to use the software. He also clarified that delivery of software products is done in an electronic form via electronic transmission channels as specified in the Distributor's Purchase Order and the vendors are sending a unique key file to the distributor that authorizes installation and use of products by the end user. He also submits that End User License Agreement (EULA) is entered between the end user and the owner of the Anti-Virus software (foreign vendors) and that appellant had neither acquired any right to use nor given any right to use to the end user. As the EULA is between the ultimate user of software and the vendors (owners of Anti-Virus software), they are not signatory/party to EULA. His argument is that to fall under section 65(105)(zzzze)(v), under which demand has been raised, the right to use for commercial exploitation has to be along with all the three rights i.e., right to reproduce, distribute and sell, whereas, no such right has been given to them and therefore, right for commercial exploitation has not been given to the appellant and therefore, their services cannot fall under section 65(105)(zzzze)(v), which is the charging section for levying service tax.
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8. On the issue of invocation of extended period, his main submission is that this is a revenue neutral situation, inasmuch as they had discharged much more service tax on the output services provided as compared to service tax, if liable to be paid under RCM, which would have been otherwise available as Cenvat credit. He has relied on the judgment of Sarovar Hotels Pvt Ltd Vs CST [2018 (10) GSTL 72 (Tri-Mumbai)]. He has also relied on various judgments as under, in support that in case of revenue neutrality, no intention to evade payment of tax can be attributable to the person liable to pay tax.
a) Asmitha Microfin Ltd Vs CC [2019 99) TMI 122 (Tri-Hyd)]
b) Himadri Speciality Chemical Vs Pr. Com [2024 (4) TMI 383 (Tri-HYD)]
c) Ushodaya Enterprises Vs CCE [2020 (3) TMI 457 (Tri-Hyd)]
d) Kirby Building Systems Vs CCE [2019 (10) TMI 688 (Tri-Hyd)]
e) Mahindra Reva Electric Vehicles Vs CST [2025 (7) TMI 638 (Tribunal)]
f) Artifacts India Vs CCE [2025 (6) TMI 15 (Tri-Del)]
g) Nirlon Ltd Vs CCE, Mumbai [2015 (320) ELT 22 (SC)]
9. Therefore, major portion of demand would be hit by limitation. They have also relied on the judgment in the case of State Bank of India Vs CC, CE & ST, Hyderabad-II [2018 (8) TMI 1280 - CESTAT Hyd], wherein, it was held that extended period cannot be invoked in case assessee was subjected to audit and the violations disputed were not pointed out by the audit team. In view of the fact that their books of account were duly audited by the appellant till September, 2009 without any dispute on payment of service tax under RCM, being pointed out by any audit.
10. On the other hand, learned AR points out that the ground of revenue neutrality cannot be a ground for non-payment of tax. He has relied on the following judgments, in support of this contention.
a) Board of Control for Cricket in India Vs CST, Mumbai-II [2019 (29) GSTL 304 (Tri-Mumbai)]
b) Cords Cable Industries Ltd Vs CCGST & ST, Alwar, Rajasthan [2024 (12) TMI 673 - CESTAT New Delhi]
10. Further, he contests that the appellant's contention that transaction is of sale and not that of service is not correct and places his reliance in the case of CST, Mumbai-II Vs 3I Infotech Ltd [2023 (9) CENTAX 226 (SC)].(5)
ST/26154/2013
11. Heard both sides and perused the records.
12. We find that the short issue for determination is whether in the facts of the case, this transaction is that of sale or whether this transaction is that of service. The adjudicating authority has not given any detailed reasons to arrive at the conclusion that they are liable to pay service tax. He has merely gone by the legal provision and has not rebutted whether in this particular transaction, it would be covered appropriately under the proposed classification and as also in terms of the agreement between the appellant and the foreign vendors, whether there is a temporary or permanent transfer of right to use the software (Anti-Virus software) or otherwise. We find that in this case, the appellants are having an agreement with the foreign vendors but not entering into any EULA with them. The EULA is between the foreign vendor and the ultimate buyer. The product (Anti-Virus software) is being sold to them by their vendor, which in turn is further sold to customers/ end users. The appellants are merely providing the keys electronically to the end users or sometimes in an electronic form but irrespective of the mode of delivery, these keys enable the end user to activate the Anti-Virus software on their system by accessing the product online. Further, on going through various clauses of the agreement, we find that foreign vendors have not transferred the right to use the goods, as the right to use the software has been given to the ultimate customers with whom EULA is entered and the appellants are only given right to re-sell the copies of Anti-Virus software without having any right to replicate or copy the said software.
13. Further, the agreements between the appellant and the foreign vendors indicate that this is an agreement, whereby, the vendors have been granted the distributor (appellant) a non-exclusive intellectual property right to distribute the product to sub resellers in the territory of India. It also defines the 'end users' as any third party individual, business organization, which receives a license of the product from the vendor and the 'vendor' is M/s Kaspersky Lab UK Ltd, who is engaged in the business of development of various types of computer software and data security protection software, whereas, distributor (appellant) is having special marketing and distribution knowledge. It also defines the 'key files' as unique electronic file which is required to fully enable the products to be used by end user and the (6) ST/26154/2013 'product' means copies of the software along with necessary documentation. The agreement also puts restriction on the appellant on certain activities viz., copy, manufacture, adapt, create derivative works of, translate, localize, port or otherwise modify any products or other confidential information of vendor or grant any party a license to engage in similar conduct and they will be entitled only to declare themselves as authorized distributor for the product and not as vendor's agent for licensing of the product. He is also required to ensure that all end users are provided with and enter into Vendor Licensing Agreement (VLA), which is required for each license of the product and which specifies the terms and conditions under which any end user may use the products.
14. We note that as per this agreement once the products are identified for sale in terms of purchase order from the appellant, the vendor is required to send unique key file to the appellant, which authorizes installation and use of the product and the end user to receive periodical updates during the first year. Therefore, it is obvious that they are only providing a unique key file to the distributor (appellant) for activating the use of software by the end user subject to customer entering into EULA. Appellants are required to pay certain royalty from the price of products ordered and based on End User Price List. We have also gone through the Standard EULA, which is between vendor and ultimate customer. The end user is authorized to activate the Anti-Virus software of the vendor with the use of software activation key and the said Anti-Virus software can be in an online mode or in physical mode i.e., CD. In this case, however, it is an admitted position that there is no CD involved and the activation of the software is done online using the software activation key provided by the appellant to the end user, who is entering into EULA with the vendor. The appellants are not themselves making any modification or copy or any other application of the software or the software in the form of software activation key received from the foreign vendors. Almost similar terms and conditions are also there in relation to other foreign vendors. We have also perused the purchase orders placed by the appellant on foreign vendors and we find that they are placing order for 'Kaspersky Anti-Virus'.
15. We have gone through the judgment of the Coordinate Bench in the case of Sakri IT Solutions Pvt Ltd Vs ADG (supra), wherein, the facts are (7) ST/26154/2013 more or less identical and where the assessee had entered into a distribution agreement with Kaspersky Lab UK Ltd, who granted a non- exclusive intellectual property right to distribute products to end users directly or through sub-sellers and under the said agreement Kaspersky Lab UK Ltd delivered products in electronic form via electronic transmission channel and also sent unique key files to appellant that authorizes installation and use of product by end users. The Tribunal has gone through various submissions on the issue as to whether the said transaction can be considered as transaction involving service or it can be considered as transaction of sale of goods. In this case, the only difference was that Kaspersky Anti-Virus software was supplied in CD form. The Tribunal also examined the EULA. They have gone through the judgment in the case of Quick Heal Technologies Ltd (supra), wherein the Tribunal had examined similar issue and, inter alia, held that Anti-Virus software developed by the appellant is complete in itself to prevent virus in the computer system. There is no interactivity taking place nor there is any requirement of giving any command to the software to perform its function of detecting and removing virus from the computer system. Therefore, no service tax was leviable under section 65(105)(zzzze). It also took into account the judgment of Hon'ble Supreme Court in the case of Tata Consultancy Services Vs State of Andhra Pradesh [2005 (1) SCC 308], wherein, it was held that canned software supplied in CDs would be goods chargeable to sales tax/VAT and no service tax can be levied. Essentially, this judgment held, taking into account the nature of the product as also the EULA, that transaction would amount to deemed sale. Further, on appeal filed by the department, Hon'ble Supreme Court, while deciding the matter, inter alia, upheld the view of the Tribunal that right to use software would amount to deemed sale. Therefore, having regards to various judgments in this regard, the Tribunal formulated the issue as under:
"52. From the judicial decisions, the settled essential requirement of a transaction for the transfer of the right to use the goods are:
(i) It is not the transfer of the property in goods, but it is the right to use the property in goods;
(ii) Article 366(29A)(d) read with the latter part of the clause (29A) which uses the words, "and such transfer, delivery or supply"...
would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use;
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(iii) in the transaction for the transfer of the right to use goods, delivery of the goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction;
(iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods;
(v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods; and
(vi) during the period of contract exclusive right to use goods along with permits, licenses, etc., vests in the lessee."
16. They also examined the EULA which was referred to by the Tribunal in the case of Quick Heal Technologies Ltd and came to the conclusion that as a similar EULA was executed in the case of Sakri IT Solutions Pvt Ltd, therefore, the decision of the Tribunal and the Hon'ble Supreme Court in the case of Quick Heal Technologies Ltd would apply to the facts of the present appeal. The operative portion is at para 19 & 20, cited below for, ease of reference.
"19. Thus, as a similar End User Licence Agreement was executed in the present case, the decisions of the Tribunal and the Supreme Court in Quick Heal Technologies would apply to the facts of the present appeal. The adjudicating authority was not justified in requiring the appellant to discharge service tax liability on transactions with end users for supply of license code/keys of Kaspersky Antivirus Software in retail packs under section 65(105)(zzzze) of the Finance Act.
20. Thus, in view of the decision of the Tribunal and the Supreme Court in Quick Heal Technologies, the order dated 29.02.2016 passed by the Additional Director General deserves to set aside and is set aside. The appeal is, accordingly, allowed."
17. We have seen the EULA referred to in the judgment, supra and we find that exactly same terms and conditions are there in this appeal also and therefore, the ratio of the judgment of the Coordinate Bench in the case of Sakri IT Solutions Pvt Ltd (supra) is squarely applicable in this matter. The fact that this decision is in relation to the sale between the distributor and end user does not take away the fact that nature of transaction has not been treated as that of service but as that of sale of goods. In the present appeal, the transaction is exactly the same between the vendor and the distributor. Therefore, the ratio of this judgment is squarely applicable. The fact that in this case, the software was not sold in CD does not take away the fact that the unique key has been provided by the vendor in an electronic form, which was in turn again provided in electronic form/physical (9) ST/26154/2013 mode to the end users. The fact that they have also paid service tax does not take away their defense that the transaction is that of sale and not that of service, especially when they have also paid the VAT and paid service tax by way of abundant caution due to certain confusion prevailing as to the said transaction being that of sale or service in view of various judgments. We find that the department has relied on the judgment in the case of 3I Infotech Ltd (supra). We, however, find that this judgment has heavily relied on a paper presented to the 'Committee of Experts on International Co-operation in Tax matters'. This paper is in relation to Direct Tax/Income Tax-Double Tax Avoidance Agreements, wherein the issue was how to treat the income generated from sale of software. Therefore, this judgment is not applicable to the present case where the issue is whether the supply of copy of computer programme, by providing key file where the developer retains all the intellectual property right in the programme amounts to sale of goods or provision of service. In fact, we find that the Tribunal at para 10.7 has, inter alia, held as under:
"10.7 It is settled law that software is nothing but an Intellectual Property of a person who has developed the said software. The right to use the software is something what gets transferred and not software has per se. Even if it is provided on a media such as CD or Hard Drive. Software cannot be altering, modified or reproduced by the user of the said software. He can only use the same for the purposes authorized by the rightful owner and in the manner authorized and this is further supported by the fact that in each case the recipient enters into an End User License Agreement (EULA) which is binding in nature before he can make use of the said software......"
18. However, it is apparent that the Tribunal has not considered the judgment of Hon'ble Supreme Court in the case of Tata Consultancy Services (supra), where it was, inter alia, held that a software programme may consists of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. We have already discussed that the foreign vendors have not transferred the right to use the product and the said right to use software is being given directly to the end user. Whereas, in the case of 3I Infotech Ltd (supra), software pertains to third party software such as Oracle, Sybase, etc., wherein software was customized software designed to meet specific requirement of the end user and made available for use under a license. Therefore, on (10) ST/26154/2013 these facts, the case law relied upon by the department is distinguished and not relevant for deciding the issue.
19. We also note that in terms of the Agreement, especially clauses 2, 4, 6 & 8, there is no right given to the appellant to use the goods and it is only given for resale of Anti-Virus software. We also find force in the contention of the appellant that the classification itself, under which service tax was demanded, is not correct, inasmuch as in terms of provision under section 65(105)(zzzze)(v), there is requirement that there has to be transfer of right to use information technology software for commercial exploitation including right to reproduce, distribute and sale of ITS. Since in this case, there is no right to reproduce, therefore, the clause (v) of section 65(105)(zzzze) is not the correct classification. Therefore, on this ground also, demand would not sustain.
20. Thus, following the ratio of the judgment in the case of Sakri IT Solutions Pvt Ltd (supra) and discussions, supra, we find that the demand for service tax on the appellant would not sustain on merit.
21. We have also taken up the issue of limitation and we find that it is an admitted fact that appellants have paid more service tax that what would have been the amount of service tax payable, if they were required to pay on RCM basis on the supply of so called service from their foreign vendors. In the facts of the case, reliance placed by the appellant on the judgment in the case of Sarovar Hotels Ltd Vs CST (supra) is relevant, where the Tribunal, inter alia, held that when there has been more payment of service tax than what was otherwise payable, it would be a case of revenue neutrality. The department has mainly contested that the ground of revenue neutrality in RCM situation is not a good ground for not demanding the tax payable and has relied on the judgment in the case of Autoform Engineering India Pvt Ltd Vs Pr. CCT, Hyderabad [2025 (5) TMI 68 - CESTAT Hyderabad], wherein, this Tribunal had held that ground of revenue neutrality cannot be the defense for nullifying the demand along with interest and penalty under section 76 and not under section 78. However, the Tribunal also observed that it would be a valid defense against invocation of extended period of limitation or imposition of penalty, where suppression, misstatement, etc., has been alleged. We find that in this case, though there is revenue neutrality situation, as discussed supra, however, (11) ST/26154/2013 the same, per se, cannot be the defense for non-payment of service tax. However, because of the revenue neutrality situation and in the absence of any deliberate suppression or malafide intent, extended period is not invokable in the facts of the case. Further, as demand of service tax is not sustainable, the penalty also is not imposable as no malafide intent or deliberate suppression could be imputed especially in the absence of any cogent or concrete ground for invoking the same by the department. Therefore, apart from merit, the demand is not sustainable on limitation also to the extent it is beyond the normal period. Overall, the entire demand will, therefore, not be sustainable.
22. Appeal allowed with consequential relief, if any, as per law.
(Pronounced in the Open Court on 11.09.2025) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda