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2022 (3) TMI 1313 - HC - VAT and Sales TaxLevy of tax - renewal of software licences - whether renewal of the license has the characteristics of sale or not? - demand under Section 39(1) of the Act - levy of interest and penalty as well - HELD THAT:- The software licences are taxable as per Entry 34 of the III Schedule to the Act. The stance of the department that the respondent has effected transfer of right to use the software as paid subscription, hence liable to tax under the provisions of the VAT Act, cannot be countenanced in view of the amendment brought to Section 65(105)(zzzze) with effect from 16.5.2008 which has been considered in the judgment of this Court in SASKEN COMMUNICATION TECHNOLOGIES LTD. VERSUS JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS) -3 BANGALORE [2011 (4) TMI 566 - KARNATAKA HIGH COURT]. In the case of Bharath Sanchar Nigam Limited and another v. Union of India and others, [2006 (3) TMI 1 - SUPREME COURT], the Hon’ble Apex Court has considered the mutual exclusivity reflected in Article 246(1) of the Constitution and has held that sales tax and the service tax are mutually exclusive of each other. The reasoning of the authorities that the original software which was sold was still the property of the respondent and later versions developed or upgraded are also software which is again transacted by allowing access to the customers for a consideration and hence, the transaction is transfer of right to use the upgraded version of the said software by renewal of licence, is wholly misconceived. The renewal of software licences are not routed through the respondent - Once the original software is sold, the same would not continue to be the property of the respondent. The post sale activity relating to renewal of software licence is directly from the foreign vendors to the end customers electronically through e-mail. Thus, the service tax collected on this transaction of renewal of software licence at 10.30% and remitted to the Central Government cannot be construed as transfer of right to use the goods, more particularly, when the goods are not available with the respondent. When the original goods are not available with the respondent, the aspect theory and the divisibility of the contract in furtherance of deemed sale as envisaged under Article 366 (29-A) of the Constitution, is only a myth and is not valid in the eye of law - Sales Tax Revision Petition stands dismissed.
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