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Showing contexts for: customized software in Infotech Software Dealers Association vs Union Of India on 24 August, 2010Matching Fragments
20. This takes us to the next question as to the nature of transaction. Packaged or canned software is a software that is sold off the shelf and it can be used by more than one customer. Whenever software is not sold off the shelf, the sale price includes free initial installation and implementation of the software which also includes some modification or customisation to suit the customers without disturbing the basic structure of the software or its performances. It is relevant to note that the copyright in the software is protected and always remains the property of the creator and what is sold is the right to use the software. The sale is with a condition for exclusive use of the software by the customer at the exclusion of others and it gives absolute possession and control to the user of the right to use the software. The sale normally gives a warranty period and after the said period, some annual maintenance charges are recovered for the services rendered, popularly called as "Annual Maintenance Contract". Paragraph 8523 80 20 of the Central Excise Tariff Act covers "Information Technology Software" and attracts excise duty at the rate of 10%. Supplementary Note to Chapter 85 reads as under:
"For the purposes of heading 8523, information technology software means any representation of instructions, data, sound or image including source code and object code, recorded in a machine readable form and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine."
Notification No.6/2006 (Entry 27) provides for an exemption in respect of any customized software (that is to say any custom designed software, developed for a specific user or a client) other than packaged software or canned software. The same Entry also refers to excise duty at the rate of 12% on packaged software. The explanation defines 'packaged software or canned software' to mean a software developed to meet the needs of variety of users, and which is intended for sale or capable or being sold off the shelf.
21. Paragraph 4907 00 30 refers to documents of title conveying the right to use information technology software and attracts 10% customs duty. Serial No.157 of Notification 21/2002 refers to Chapter 49 as well as 8523 and provides for an exemption from basic customs duty in respect of (i) information technology software and (ii) document of title conveying the right to use information technology software. The Explanation to the Entry defines 'Information Technology Software' to mean any representation of instructions, data, sound or image including source code and object code, recorded in a machine readable form and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine.
24. The provisions of Section 65(53a) of the Finance Act, 1994 state as follows:-
"information technology software" means any representation of instruction, data, sound or image, including source code and object code, recorded in machine readable form and capable of being manipulated or providing interactively to a user, by means of a computer or an automatic data processing machine or any other device or equipment."
25. After the Constitution (Forty-Sixth Amendment) Act, 1982 introducing clause (29A)(d) to Article 366 of the Constitution, tax on the sale or purchase of goods includes "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. The Finance Act, 2008 has brought in some new services under the service tax net. One of them is "Information Technology Software Service". The relevant amendment became effective from 16.5.2008. It was argued by Mr.Datar that after Article 366(29A)(d), even assuming that the transaction from the members of the association by delivering the software to its customer with a right to use, such transaction is deemed to be only a sale or purchase of goods. In that event, the Parliament lacks its legislative competency to bring in the amendment. In this context, we may refer to the three basic components, namely, right to install the software in a computer by registering the same subject to licensing terms and conditions, (ii) right to run the software and (iii) right to receive updates online through the internet if and when provided by the original manufacturer.