2020 (1) TMI 430 - AT - Service Tax

Nature of activity - sale or service - Information Technology services - deemed sale or not - the supply of packed Antivirus Software to the end user by charging license fee - Whether the Antivirus Software provided by the Appellant to the users in packed CDs is a provision of service under “information technology software” and hence leviable to Service Tax prior to 1 July, 2012 as also after 1 July, 2012? - demand alongwith interest and penalty - extended period of limitation.

Whether the meaning assigned to ‘information technology software‘ under section 65(53a) of the Act for a period prior to 1 July, 2012 would cover “Quick Heal Antivirus Software”? - HELD THAT:- The Antivirus Software developed by the Appellant is complete in itself to prevent virus in the computer system. Once the computer system is booted, the Antivirus Software begins the function of detecting the virus, which continues till the time the computer system remains booted. The computer system only displays a message that viruses existed and that they have been detected and removed. No interactivity takes place nor there is any requirement of giving any command to the software to perform its function of detecting and removing virus from the computer system. It is also seen from the meaning assigned to ‘interactive‘ that a program should involve the user in the exchange of information. There has to be action and communication between the two. A user should communicate with the computer facility and receive rapid responses, which can be used to prepare the next inputs. In contract, in other softwares like ERP, EXCEL, MS Word, there is continuos interaction between the user and the computer system and these softwares perform only after receipt of input from the user - Such being the position, no service tax was leviable under section 65(105)(zzzze) of the Act prior to 1 July, 2012. Even after 1 July, 2012 the definition of ‘information technology software‘ under section 65B(28) remained the same and so also service tax was not leviable.

It is clear from the decision of the Supreme Court in TATA CONSULTANCY SERVICES VERSUS STATE OF ANDHRA PRADESH [2004 (11) TMI 11 - SUPREME COURT] that intellectual property, once it is put on the media and marketed could become ‘goods‘ and that a software may be intellectual property and such intellectual property contained in a medium is purchased and sold in various forms including CDs.

The agreement provides that the licensee shall have right to use software subject to terms and the conditions mentioned in the agreement. The licensee is entitled to use the software/RDM services from the date of license activation until the expiry date of the license. The licensee is also entitled for the updates and technical support. The conditions set out in the agreement do not interfere with the free enjoyment of the software by the licensee. Merely because “Quick Heal” retains title and ownership of the software does not mean that it interferes with the right of the licensee to use the software.

The transaction in the present Appeal results in the right to use the software and would amount to ‘deemed sale‘. It is, therefore, not possible to accept the contention of the learned Authorized Representative of the Department that the transaction would not be covered under sub-clause (d) of article 366(29A) of the Constitution.

Appeal allowed - decided in favor of appellant.