SERVICE TAX Supreme Court Cases

Service Tax - Section 65B and Section 66E of Finance Act 1994 - Information Technology Software Service - assessee is engaged in the development of Quick Heal brand Antivirus Software which is supplied along with the license code/product code either online or on the replicated CDs/DVDs to the end-customers – an inquiry was initiated against the assessee and revenue reached to the conclusion that the assessee is liable to pay service tax on the transactions with the end-customers to supply the license codes/keys of Quick Heal brand Antivirus Software in the retail packs – Confirmation of demand of service tax on the consideration received for the supply of the license codes/keys of Antivirus Software during the period between 01.03.2011 and 31.03.2014 – Tribunal allowed the appeal filed by the assessee and set aside the demand – Hence, instant appeal by Revenue – whether the right to use the software amounts to deemed sale – HELD – The sum and substance of the ratio of Apex Court in the case of BSNL is that the contract cannot be vivisected or split into two. Once a lumpsum has been charged for the sale of CD, as in the case on hand, and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided - the artificial segregation of the transaction into two parts is not tenable in law - It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is “goods”, then there cannot be any separate service element in the transaction because even otherwise the user is put in possession and full control of the software – the subject transaction amounts to “deemed sale” which would not attract service tax - the impugned order of the Tribunal suffers from no jurisdictional or any other legal infirmity warranting any interference – Revenue appeal is dismissed - Requirement of a transaction for the transfer of the right to use the goods - The settled essential requirement of a transaction for the transfer of the right to use the goods are: (i) it is not the transfer of the property in goods, but it is the right to use the property in goods; (ii) Article 366(29A)(d) read with the latter part of the clause (29A) which uses the words, “and such transfer, delivery or supply”… would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; (iii) in the transaction for the transfer of the right to use goods, delivery of the goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; (iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general control over the goods; (v) the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods, and (vi) during the period of contract exclusive right to use goods along with permits, licenses, etc., vests in the lessee

Quick Search


Create Account

Log In

Forgot Password

Please Note: This facility is only for Subscribing Members.

Email this page

Feedback this page