Custom, Excise & Service Tax Tribunal
Tally (India) Pvt Ltd vs Bangalore Service Tax- I on 29 October, 2024
Service Tax Appeal No. 2545 of 2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
Regional Bench COURT-2
Service Tax Appeal No. 2545 of 2011
[Arising out of the Order-in-Original No.114/2011 dated 26.05.2011 passed
by the Commissioner of Service Tax, Bangalore.]
Tally (India) Pvt Ltd
AMR Tech Park-II,
No.23 & 24, Hongasandra, Hosur Main Road,
Bangalore - 560068 .......Appellant
VERSUS
CCE & CST- Bangalore
Commissioner of Service Tax-I
1st to 5th Floor,
TTMC Building, above BMTC bustand
Domlur Bangalore
Karnataka-560 ..... Respondent
Appearance:
1. Mr.V. Raghuraman, Sr. Advocate for Appellant
2. Mr. Bhanumurthy J.S. Advocate for Appellant
3. Ms. Sneha J.P., Chartered Accountant for Appellant Mr. Saravana Perumal, Authorized Representative for Respondent Coram:
Hon'ble Mr. P. Anjani Kumar, Member (Technical) Hon'ble Mr. P.A. Augustian, Member (Judicial) FINAL ORDER No. 21072 of 2024 Date of Hearing: 29.05.2024 Date of Decision: 29.10.2024 Per: P.A. Augustian The issue in the present appeal is regarding service tax liability on sale of imported tally software by the Appellant. Appellant is the distributor for marketing and installation of tally software on Page 1 of 12 Service Tax Appeal No. 2545 of 2011 behalf of seller M/s Tally Solution FZ LLC Dubai, who (They) hold the intellectual property right and copy rights; product alone is transferred to the Appellant. Copy right of the tally software is with the seller. The goods are imported in both physical and downloaded forms and sold to the customers. Appellant is also upgrading the software. While carrying out all these activities Appellant were paying customs duty on as well as VAT, on sale of goods. Alleging that the activity carried out by the Appellant amounted to taxable service, Revenue issued a Show Cause Notice No. 18/2009-10 dated 01.04.2010 demanding service tax of Rs 12,04,76,672/-, for the period from 16.05.2008 to 06.07.2009, along with interest and penalties; show cause Notice alleged that the appellants are liable to pay service tax on the Information Technology Software (ITS Services) rendered by them and import of software received by them.
Adjudicating Authority, vide impugned order No. 114 of 2011 dated 26.05.2011, confirmed the demand of Rs 12,04,76,672/- along with interest and penalty of Rs 200/- per day or at the rate of 2% of the Service Tax per month under 76 and penalty of Rs. 1000/- under 78 of Finance Act,1994. Aggrieved by said order present appeal is filed.
2. When the matter came up for hearing, Ld Counsel for the Appellant submits that the demand is prima facie unsustainable, since the activity undertaken by the Appellant is sale of tally accounting software and not that of rendering any service. Ld Counsel draws our attention to the copy of sale invoices and copy of VAT returns evidencing payment of applicable VAT/CST and submits further that Page 2 of 12 Service Tax Appeal No. 2545 of 2011 VAT/CST as applicable is remitted on the sale of software whether in physical or through downloaded mode. on import of the software in physical mode, applicable duties of customs were also paid.
when the importation is through online, the same is exempted from the CVD vide entry vide Entry 60 of Notification No. 20/2006-Cus dated 01.03.2006.
the appellants, vide letter dated 05.09.2008, informed the facts regarding import software in download mode to Customs Authority.
as per the distributor agreement dated 01.02.2006, the Appellant is appointed as distributor for marketing and installation of software not exclusive basis.
3. Ld Counsel submits, as regards the demand of duty against the goods imported in physical mode (in CVD mode), that it became goods which are liable to sale tax. The Ld Counsel also draw our attention to the judgment of the Hon‟ble Supreme Court in the matter of M/s Tata Consultancy Services (TCS) Vs. CC State of Andhra reported in 2004 (178) ELT 22 (SC) where it is held that: -
24. In our view, the term "goods" as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain Page 3 of 12 Service Tax Appeal No. 2545 of 2011 with the originator of the programme. But the moment copies are made and 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 programme 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 programmes have all these attributes.
74. It is not in dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A „goods‟ may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would-be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability.
4. Ld Counsel also draw our attention to M/s Engineering Analyzing Centre of Excellence Pvt Ltd. Vs. C. Commercial Page 4 of 12 Service Tax Appeal No. 2545 of 2011 Taxes - 2022 (3) SCC 321 and submits that if the goods are capable of being brought and sold; being transmitted; being transferred/ delivered; being stored as and possessed will be called goods. He submits that software, whether customized or non- customized satisfies these attributes and therefore, would qualify to be goods,. Since all the above attributes are satisfied, the software imported by the Appellant is goods and not liable to service tax.
5. Ld Counsel also draw our attention to the judgment of the Hon‟ble Supreme Court in the matter of CST vs. M/s Quick Heal Technologies Ltd - (2022 (03) GSTL 305 SC (para 65) wherein it was held that if it is a transaction of sale of software and once if it is accepted that software to be in the CD and there cannot be in a separate service element in the transaction. Ld Counsel also relies the decision of the Hon‟ble High Court of Karnataka in the matter of Infosys Ltd Vs. DC CT (2015 TIOL 2106-HC-KAR-VAT) wherein it was held that packaged readymade, of the shelf software are pure goods liable only to VAT. The Ld Counsel also submits that as held by the Hon‟ble High Court of Madras in the matter of M/s Infosys Technologies Ltd Vs. Commissioner of Commercial Taxes (2009 (233) ELT 56), if the software whether customized or non- customized satisfy the rule as a goods, it will also be goods for the purpose of sale tax. Thus, the software imported and sold by the Appellant is import and sale of goods and not liable to service tax.
6. As regarding the goods imported and sold in downloaded form through Internet, Ld Counsel submits that as per the judgment of the Hon‟ble Supreme Court in the case of M/s Tata Consultancy Page 5 of 12 Service Tax Appeal No. 2545 of 2011 Services (Supra), the moment copies are made and marketed, it became goods which are subject to sales tax. Ld Counsel also relied the decision of the M/s Infosys Technologies Ltd (Supra). Ld Counsel further submits that the matter of M/s Engineering Analyzing Centre of Excellence Pvt Ltd (Supra), Apex Court held that the consideration paid by the distributor in India to foreign/Non resident manufacturer or supplier is the price of the computer programme as the goods either in a medium which stores the software or in a medium by which software is emboded in software it may then further resold by the distributor to the end user in India.
7. Regarding demand against upgradation of software, the Ld Counsel submits that as per the decision of the Hon‟ble Supreme Court in the matter of CST vs. M/s Quick Heal Technologies Ltd, once lumpsum has been charged for the sale of CD as involved in present appeal and sale tax has been paid thereon, Revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that updates are being provided. Similarly in the matter of M/s Infosys Technologies Ltd (Supra), the copy rights in the enhancement upgrade maintenance and release vest with the owner assesses and same is not transferred to the customer and what is transferred only is the right to use therefore, the said enhancement, upgrade, maintenance also needs to be construed also as goods and liable to VAT. The Ld Counsel also relied upon the decision in the matter of M/s BSNL Vs Union of India (2006 (2) STR 161 (SC) and the judgment of Hon‟ble Supreme Court in the matter of M/s Magic Creative Pvt Ltd Vs Commissioner of Page 6 of 12 Service Tax Appeal No. 2545 of 2011 Commercial Taxes (2008 (9) STR 337 wherein it is held that once Appellant had paid VAT on the sale of goods, service tax cannot be demanded on such sale of goods.
8. Ld Counsel for the Appellant draw our attention to the SVB order dated 24.01.2007 and submits that while considering the issue related to valuation of the goods imported by the Appellant, as per the SVB order No. 5770/2007 dated 24.01.2007, it is admitted that the Appellant is transacting goods and the price paid for importation is at arm‟s length, Ld Counsel also draw our attention to the CBIC instruction dated 29.02.2008 wherein it is clarified that packaged software sold off the shelf being treated as leviable to excise duty @ 8%. The Ld Counsel also draw our attention to the definition of exact Information technology software (ITS) service defined in Section 55 (53a) and extract of taxable service under Section 65(105) zzzze of the Finance Act, 1944 and submits that as per the law laid down by the Apex Court in the matter of M/s Tata Consultancy Services (Supra), sale of pre-packaged or scanned software is in the nature of sale of goods and is not covered under the heading of intellectual property services.
9. The Ld Counsel further submits that even if it is held that Appellant is liable to pay service tax, the Appellant is entitled for the benefit of Notification No. 12/2003-ST dated 20.06.2003; value of goods and material is to be excluded for calculating the value of services. Further, he submits that since the Appellant has not collected separate service tax, value adopted for the service tax computation is to be considered in cum duty basis. Further the Ld Page 7 of 12 Service Tax Appeal No. 2545 of 2011 Counsel submits that as per judgment of Hon‟ble Supreme Court in the matter of M/s Formica India Division vs CCE (1995 (77) E.L.T 511 (SC), if it is held that Appellant is liable to pay service tax, Appellant is eligible for CENVAT credit; as per the judgment of Hon‟ble Supreme Court in the matter of M/s Nirlon Ltd Vs CC, Mumbai (2015 (320) E.L.T 22 (SC), payment of service tax and availing CENVAT credit would result in Revenue neutrality.
10. Regarding invocation of the extended period of limitation, Ld Counsel for the Appellant draws our attention to the communication made by the Appellant with Tax research Unit (TRU) on 29.04.2008 and 19.05.2008...etc, where the Appellant had highlighted the activities and made detailed submission. Facts being so, the details of the transactions are well within the knowledge of the Respondent and considering the same, there is no reason or justification for confirming demand of duty by invoking the extended period of limitation from 16.05.2008 to 30.09.2008. Ld Counsel further submits that the penalty imposed by Adjudication authority under Section 78 was dropped by the Appellate authority on the ground that there does not seem to be the presence of guilty mind warranting penalty under Section 78 of the Finance Act, 1994. Facts being so, as per the decision of the Tribunal in the matter of M/s Frankie Fabric India Ltd Vs CCX (2017 (52) STR 155 (Tri. Mumbai) demand of duty by invoking the extended period of limitation is unsustainable.
11. Learned Authorised Representative reiterates the findings in the impugned order and further submits that as per the evidence Page 8 of 12 Service Tax Appeal No. 2545 of 2011 available on record, the Appellant were providing taxable service under Information Technologies Software services to their clients and also are registered under Service Tax for the said services. The proceedings were initiated only after confirming that the Appellant failed to pay service tax for the service received under Information Technologies Software services from their foreign service provider. The Ld AR also submits that the Appellant is involved in accounting solution software under Tally with the activity involving Development of Software, designing and programming of software, adoption, upgradation, enhancement, implementation related to software, providing advice, consultancy and assistance on matters relating to software including conducting feasibility studies on implementation of a software system, specification of database design and specification to secure a database, providing the right to use a software for commercial exploitation, marketing/sale of the software and providing right to use the software supplied electronically. Thus, the activity of the appellant is classifiable under the taxable category of Information Technologies Software services and liable to pay service tax. Ld AR also relied on the judgment of the Hon‟ble Supreme Court in the matter of M/s Idea Mobile Communication Vs CC, Cochin (2011 (23) STR 433 (SC), M/s Infotech Software Dealers Association Vs Union of India (2010 (20) STR 289 (Mad), M/s K7 Computing Pvt Ltd Vs Commissioner of GST & Central Excise (2022 (59) GSTL 129 (Mad), M/s K7 Computing Pvt Ltd Vs Commissioner of GST & Excise, Chennai (2021 (44) GSTL 364 (Mad).
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Service Tax Appeal No. 2545 of 2011
12. Heard both sides. Regarding demand of duty by invoking the extended period of limitation from 16.05.2008 to 30.09.2008, once penalty imposed by Adjudication authority under Section 78 was dropped by the Appellate authority on the ground that there does not seems to be the presence of guilty mind warranting penalty under Section 78 of the Finance Act, 1994 and when said finding has not been challenged by the revenue, following the decision of the Tribunal in the matter of M/s Frankie Fabric India Ltd (supra), demand of Service Tax by invoking the extended period of limitation from 16.05.2008 to 30.09.2008, is not sustainable.
13. As regarding the issue on merits, reliance of the Learned AR on the judgment of the Apex Court in the matter of M/s Idea Mobile Communication, the facts are different from the Appellant‟s case. In the above matter, the Tribunal held that service tax is not sustainable as sale tax paid on the sim cards on. However, the Hon‟ble High Courts concluded that service tax payable is as much as Sim cards having not intrinsic value and it is supplied for the customer for providing mobile services. Sales tax authorities dropped proceedings for inclusion of the activation charges after remand by Hon‟ble Supreme Court in the matter of M/s BSNL. As regarding the demand of duty against the goods imported in physical form by CVD mode, as per the judgment of the Hon‟ble Supreme Court in the matter of M/s Tata Consultancy Services (TCS) (supra), 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 Page 10 of 12 Service Tax Appeal No. 2545 of 2011 property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. Similarly in the matter of M/s Engineering Analyzing Centre of Excellence Pvt Ltd. Vs. C. Commercial Taxes - 2022 (3) SCC 321. It is held that if a software whether customized or non-customized satisfies these attributes i.e. the goods are capable of being brought and sold capable of transmitted, transferred delivered, stored as and possessed, they would qualify to be goods. Since all the above attributes are satisfied, the software imported by the Appellant is goods and not liable to service tax. Further as per the judgment of Hon‟ble High Court of Karnataka in the matter of Infosys Ltd Vs. DC CT (2015 TIOL 2106-HC-KAR-VAT), packaged readymade, of the shelf software are pure goods liable only to VAT. The Ld Counsel also submits that as held by the Hon‟ble High Court of Madras in the matter of M/s Infosys Technologies Ltd Vs. Commissioner of Commercial Taxes (2009 (233) ELT 56), if the software whether customized or non-customized satisfy the rule as a goods, it will also be goods for the purpose of sale tax. Thus, the software imported and sold by the Appellant is import and sale of goods and is not exigible to service tax.
14. As regarding the goods imported and sold in downloaded form through Internet, as per the judgment of the Hon‟ble Supreme Court in the case of M/s Tata Consultancy Services (Supra), the moment copies are made and marketed, it became goods which are subject to sales tax.
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Service Tax Appeal No. 2545 of 2011
15. Regarding demand against upgradation of software, as per the decision of the Hon‟ble Supreme Court in the matter of CST vs. M/s Quick Heal Technologies Ltd, once lumpsum has been charged for the sale of CD as involved in present appeal and sale tax has been paid thereon, Revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that updates are being provided. Thus, it is well settled that once Appellant had paid VAT on the sale of goods, service tax cannot be demanded on such sale of goods.
16. Considering the above, the impugned order is set aside and appeal is allowed with consequential relief if any in accordance with law.
(Order dictated and pronounced in open court on 29.10.2024) (P. Anjani Kumar) Member (Technical) (P.A.Augustian) Member (Judicial) Sasidhar Page 12 of 12