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2020 (2) TMI 1207 - AT - Service TaxTaxability - sale of ‘canned software’ produced by third parties and their own software deployed in the banking industry - taxable service or not - information technology service or not - HELD THAT:- It is an admitted fact that the appellant is in the business of 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. There is no doubt that the appellant is in the business of developing software and that such software is used by the banking industry. There are no evidence of such software being designed according to the requirements of, or standards prescribed by, customers. There is no doubt that the licence, provided along with the media containing the software, represents the right to use; however, this is a general industry wide practice that is not alien to ‘canned software’. In the absence of facts that establish otherwise or of any evidence that such was the transaction between the appellant and the customers, it was not appropriate for the adjudicating authority to conclude that sale of banking software to a bank is ‘commercial exploitation’ merely because the bank deploys the software in its normal business activities. The specific connotation of ‘right to use’ and the ‘intellectual property rights’ enshrined within it mandates commercial exploitation to be ascertained in an entirely different context, viz., that of reproduction or distribution. Appeal allowed - decided in favor of appellant.
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