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it to the purchaser's requirements. Such adaptation made in the software involved only labour of IT professionals and there is no sale of goods. The AMC also is with respect to the repair, maintenance or modifications made in the software after the sale, which again involves only labour and no transfer of property in goods. The work carried on in the software sold to the purchaser is customization as per the requirement of the purchaser.

2. The Intelligence Officer found that the price quoted as also the agreement executed is a composite one for the software and the customization carried out. The dominant object was the sale of the software with the customization incorporated in the Compact Disc (CD), which contains the software. Only a meagre amount was conceded as price of software and the lion's share was shown as consultancy charges, thus disclosing a willful intention to evade tax. Penalty was imposed at double the tax sought to be evaded, at the maximum, in both the assessment years.

4. The learned Senior Government Pleader Sri.Mohammed Rafiq, on the basis of the records produced before us, argued that the sale itself was of the customized software. The records indicate that there is no written agreement as such, but the proposal for development and implementation of the software called 'Muziris Textile Trade IS' shows the price of the CD at a nominal charge and the IT consultancy charge at more than ten times the sale price of the CD. There is a separate component for additional locations and additional customization for new locations. The payment terms are also at percentages in each stage without any distinction drawn of the different components. The sale price, hence, involves the price quoted by the assessee and it cannot be said that the customization is on the product sold to the purchaser, O.T.Rev.171/2015 & - 6 -

 O.T.Rev.171/2015 &                       - 19 -



            13. The          factual situation             has to       be considered

looking at ESSAR Gujarat Ltd and Tata Consultancy Services. The software is one developed by the respondent-assessee, which has to be modified and adapted as per the requirements of the individual purchaser. Without such modification and adaptation, the software has absolutely no utility for the purchaser. As has been found in ESSAR Gujarat Ltd, the mere purchase of the machinery does not make it operational. Without the operation licence and the technical know-how from the entity which developed the specific process of 'Direct Reduction of Iron', there could be no operational function for the machine purchased. The licence and the technical know-how are imperative components for the goods purchased to be effectively utilized, which makes the amounts payable for obtaining such licence and technical know-how includible in the value of the goods on which tax or duty on the goods can be levied. Both the appellate authorities have not looked at this specific issue. If the customization carried out is imperative for the operation of the software necessarily it would be a sale of goods with the software on which the customization is incorporated. However we are of the opinion that the AMC would be taxable only if there is any O.T.Rev.171/2015 & - 20 -

sale of goods. Even if consultancy charges are received to tweak the customized software to the changing requirements of the client or to extend it to more premises, then necessarily it is occasioned after the sale

14. The learned Senior Government Pleader invited us to the records to point out that the invoices produced would clearly demonstrate the manner in which the transaction was carried out, making the entire turnover taxable under the KVAT Act. We are, however, not looking at the facts in the above revisions and have to confine ourselves to determination of questions of law. We have stated the law and the facts have to be examined by the statutory authorities. The statute provides for adjudication by the original authority and then two stages of appeals; the forums enjoined with the power to so adjudicate have been empowered to look into the facts. In the above circumstances, we are of the opinion that the matter has to be remanded back to the fact finding authority. Considering the long lapse of time, we are of the opinion that the Tribunal can consider the issue by specifically looking into the documents as relied on by the State, which are the documents produced by the assessee evidencing the transactions.