The Madras High Court in its recent ruling in the case of M/s. K7 Computing Private Limited has held that the Service tax is applicable on ‘Anti-Virus Software’ as it falls within the definition of ‘Information Technology Software’.
Facts of the case:
The petitioner, M/s. K7 Computing Private Limited develops Anti-Virus Software in the name of ‘K7 Total Security’ and ‘K7 Anti-Virus’, which is software for Antivirus.
The demand of service tax of Rs.4, 27, 99,059 payable for the period from July 2012 to March 2013 under Section 73(1) of the Finance Act, 1994 together with interest and penalty which was challenged in the writ petition.
The issue raised in this case was whether, an Anti-Virus Software would fall within the ambit of the definition of Information Technology Software as defined under Section 65 (53a) of the Finance Act, 1994.
Contention of the Petitioner:
The petitioner argued that he has discharged VAT on the sale of Anti-Virus Software, since it is deemed to be a ‘sale of goods’ and has been duly assessed by the authorities under the Tamil Nadu Value Added Tax Act over the statutory returns filed by them and therefore, the claim of the Department that the transactions rendered by the petitioner is amenable to service tax, cannot be substantiated.
Argument of Revenue:
The respondent argued that the petitioner’s Anti-Virus Software is a representation of instructions recorded in a machine-readable form that provides interactivity to the End User through a computer that has working internet connectivity and therefore, Anti-Virus Software squarely falls within the definition of Information Technology Software.
Order of Madras High Court: Deliberayion and Ruling
- The Hon’ble Division Bench of the Madras High Court in in the case of Infotech Software Dealers Association (ISODA) V. Union of India reported in 2010 (20) STR 289 (Mad) has held that when the developer of a software retains his copyright and transfers the network subscriber the right to use the software, by way of an End-User Licence Agreement (EULA), it would only amount as a ‘service’. It was also held that though the software are goods, when the goods as such is not transferred but the transaction of right to use as transferred to the end-user, it would only be a ‘service’ and not a ‘sale’
- The ‘Anti Virus Software’ runs on computers, mobile phones, data processing machine, sensors, cameras and other such equipments. They provide interactions with the user under the EULA, by providing interactions, configurations and other screens or pages. They are invariably provided to the market in machine readable, executable or binary compilations and exists with the creator or producer in source code or object code forms. They are representation of instructions that include data, sounds and images.
- The petitioner’s Anti-Virus Software in CD forms squarely falls within the essential features of the definition of the Information Technology Software. In other words, all essential conditions stipulated under the definition of Information Technology Software are the essential and salient features of an Anti-Virus Software also.
- If that be so, the submissions of the petitioner that an ‘Anti-Virus Software’ is outside the ambit of the definition of an ‘Information Technology Software’ are not based on any ‘Intelligible Differentia.
In view of above the single judge bench of Justice M.S. Ramesh held that the petitioner has failed to substantiate that Anti-Virus Software will not fall within the ambit of the definition of ‘Information Technology Software’.
“Since the petitioner is liable to pay service tax but has not discharged the service tax liability, the provisions of Section 68 of the Finance Act, 1994 r/w. Rule 6 of the Service Tax Rules have been violated and therefore, I do not find any infirmity on the part of the Department, in imposing interest under Section 75(i) along with penalty under Section 76(1) of the Finance Act, 1994,” the court held.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
