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6. Accepting their plea, in Budget 2009, two parallel notifications were issued on the excise and customs side. Vide notification no. 22/2009-C.E., dated 7-7-2009, partial exemption from excise duty was provided to packaged or canned software on that portion of the value which represents the consideration for the transfer of the right to use for commercial exploitation, as on this portion, service tax would be leviable under the ITSS. Similar exemption from CVD was provided vide notification No. 80/2009-Customs dated 7-7- 2009 on such software. These exemptions were notified to ensure that while importing or manufacturing packaged software, the importer/manufacturer is spared from paying customs duty/excise duty on the value attributable to transfer of 'right to use'.

Representations have been received from some industry association on behalf of software dealers about difficulties being expressed in the assessment to customs duty of documents of title for IT software or documents that enable the transfer of the right to use such software at the time of its sale. It has been reported that there are frequent imports of such documents without any accompanying software. Such packages do not contain software but consist of paper licenses or PUK (Personal Unlocking Key, usually in the form of a scratch card of paper board or plastic) that are used to convey the right to use such IT software. The software in these cases could be freely downloadable or loaded by the OEM supplier under an arrangement with the software company as pre- loaded trial version of software on the computer system requiring the customer to purchase license or PUK after the trial period. Typically these licenses are used either to authorize additional uses against a sale of IT software that has already taken place in the past or to service transactions where the connected software is downloaded electronically by the customer. It has been pointed out that some of the field formations are insisting on the classification of such documents, even when imported without the packaged software, under CTH 8523 i.e. the heading applicable to IT software. It has also been represented that in certain cases the Service Tax Appeal No.2511 of 2012 entire value of the license representing the right to use such IT software is sought to be loaded to the value of past imports of IT software by the importer.

Service Tax Appeal No.2511 of 2012

3. It is, therefore, clarified that paper licenses or PUKs merit classification as per their individual character under heading 4907 in case of paper license and heading 4911 in case of PUK card, the same being other printed matter.

4. In the context of assessment of pre-packaged software imports, kind attention is also drawn to Notification No. 30/2010- Central Excise (N.T.) dated 21st December, 2010 by which all such packaged software or canned software were brought under the purview of assessment based on retail sale price, as also Notification No. 25/2011-Cus., dated 1-3-11 and Notification No. 14/2011-C.E., dated 1-3-11, whereby in case of such packaged software which does not require affixation of Retail Sale Price (RSP), exemption has been provided, from payment of Excise duty/CVD, on the portion of value representing consideration for transfer of right to use such packaged/canned software. These exemptions have been issued in order to rule out taxation of this portion of the value twice-once as Excise duty/Additional duty of Customs and another time as Service Tax on the consideration that all package software is not sold as shrink wrapped software and that affixation of retail sale price is not required for certain categories viz. (i) software on optical media supplied free of charge, for which right to use or license is purchased separately;

6. All pending assessments of software, paper licenses and PUK cards may be finalized accordingly. These instructions may also be brought to the knowledge of the field formations and the trade. Any difficulty faced in implementation of these instructions may be brought to the attention of the Board.

Following, the Circular, the Customs Department has assessed the stickers/labels under CTH 4907 00 30 of Schedule to the Customs Tariff Act, 1975.

20. Thus, merely by affixing the stickers / labels providing authenticity to software loaded to each of the Thin Clients cannot be construed as a 'service' received by the appellant under the category of ITSS as held by the Commissioner in the impugned order. We are of the view, in the absence of a transfer of copyright of the software but only on mere right to use the software as clarified in the aforesaid circulars in explaining the scope of the levy as 'service' under ITSS, distinguishing the same from levy of excise duty and applicable customs duty being Information Technology software falling under Chapter 85 of Central Excise Tariff Act, 1985 or CTA,1985 as the case may be, the import of stickers/labels, later affixed to the Thin clients cannot considered as a 'service' and attract levy under ITSS.