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Mumbai - II 9th Floor, Piramal Chambers, Jijobhoy Lane, Lalbaug Mumbai - 400 012 APPEARANCE:

Shri RD Wagle, Advocate for the appellant Shri Bidhan Chandra, Additional Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/85342 / 2020 DATE OF HEARING: 04/09/2019 DATE OF DECISION: 26/02/2020 PER: C J MATHEW In the appeal of M/s InfrasoftTech India Ltd against order-in- original no. 54,55/ST/RN/CMR/MII/13-14 dated 15th May 2014 of ST/88568/2014 Commissioner of Central Excise, Mumbai - II, covering the period from May 2008 to March 2011, challenge is to the recovery of ₹3,11,95,070/-, along with interest thereon, and imposition of penalty of like amount on what is claimed to be sale of software developed for their own use and marketed as 'core banking' software to their customers which was charged by service tax authorities to be liable as provider of 'information technology software service'.
(ii) The right to prepare derivative computer programmes based upon the copyrighted computer programme
(iii) The right to make a public performance of the computer programme.
(iv) The right to publically display the computer programme.

184. In view of the foregoing discussion, we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the assessee in respect of the software cannot be considered as royalty either under the Income-tax Act or the DTAA.' it is the contention of Learned Counsel that the detailed exposition should place the activities of the appellant beyond the pale of the said sub-clause. Inviting our attention to circular no. 354/89/TRU dated 4th November 2009 of the Central Board of Excise & Customs clarifying that '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 ST/88568/2014 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'.' as elaboration of the intent to tax, he discountenances the stand of the adjudicating authority.

5. According to Learned Authorised Representative, the product of the appellant is covered by section 65(53a) of Finance Act, 1994 defining 'information technology software' as '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 a computer or an automatic data processing machine or any other device or equipment;' and as the show cause notices have enumerated the various activities, all of which lie within the ambit of the said definition, the failure to crystalize the sub-clause is not fatal to the proceedings for which reliance is placed on the decision of the Hon'ble Supreme Court in Collector of Central Excise, Calcutta v. Pradyumna Steel Ltd [1996 (82) ELT 441 (SC)]. Further, according to him, perpetual licensing of ST/88568/2014 software can be inferred from the contract which explicitly permits commercial exploitation and that tweaking of the generic product for use by the banking industry to take care of new requirements constitutes 'customized software' which is within the scheme of tax liability. Attention was drawn to the impugned order which has rendered the finding that '22.2. From a combined reading of the above restrictions and terms it is obvious that above restrictions imposed on the client are of such a nature that the they are restricting the right of free enjoyment of the software in the same way as a purchaser of goods is able to have. Therefore, it is not a 'transfer of right to use software' as per Clause 29(A)(d) of Article 366 of the Constitution of India and it can not be treated as deemed sale. It is a simple case of a licence to use and not Transfer of right to use software. It is neither transfer of title nor deemed sale and hence is liable to service tax. Providing the right to use mentioned in cl. (v) of the definition of information technology software is the same thing as providing the license to use. Therefore this activity of providing the license to use software falls under Clause (v) of the definition of 'Information Technology Service and is taxable.'

(vi) providing the right to use information technology software supplied electronically;' and that instead of 'canned software' which is considered to be goods, the appellant herein is alleged to have supplied 'customized software'.

8. It is an admitted fact that the appellant is in the business of ST/88568/2014 perpetual licensing and software licence, sale of third-party software, customization of software as per requirement of customers and implementation and maintenance of software. The taxability of 'information technology software service' has had its own share of teething problems with various clarifications having been issued pursuant to representation from the trade. The software that is sold on physical media comprises the inherent contents therein along with right to use and the incorporation of the above activity in the enumeration of taxable service appears to have been intended to levy tax on the 'intellectual property right' component as is evident from the two notifications, issued under Central Excise Act, 1944 and Customs Act, 1962, to provide for abatement to the extent of taxability under Finance Act, 1994 on certain portion of the consideration. It is the claim of the appellant that they are not in the business of customizing software and that their developed software is directly utilized by the banking industry which may or may not make adjustments for their own use. The original authority appears to have come to the conclusion of taxability by interpreting the commercial exploitation, in the definition of 'taxable service', with reference to its lexicographical meaning. Against this, the contention of the appellant is that the licence can be utilized only by the recipient of the software who is barred from transferring, or subletting, the software to anyone else. As the scope of usage by the customers did not extend to commercial exploitation, the classification of the activity as ST/88568/2014 'information technology software service' would not be in order. It also not in dispute that the grant of licence, covered by a separate agreement of the customers, is the effective 'right to use' envisaged in section 65(105)(zzzze) of Finance Act, 1994.