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2024 (3) TMI 691 - CESTAT BANGALORENature of activity - sale or service - Classification of services - purchase/import of Certificate of Authenticity(COA)/ stickers/labels on high sea sale basis from M/s Priya Ltd., later affixed on the manufactured ‘Thin Clients’ already installed with MS software embedded system procured from local Microsoft authorized distributors - Information Technology Software Services or not - demand issued on 23.06.2011 for the period from 01.04.2008 to 31.03.2010 - invocation of extended period of limitation. Whether the purchase/import of COAs/stickers / labels will result in sale or service? HELD THAT:- On a cumulative reading of the definitions and the ‘Licence Grants and Limitations’ in the present context, it is found that the appellant are engaged in the manufacture of ‘Thin Clients’, which required a software to make it functional/operational and they are not distributors/resellers of the installed/ embedded software. For the said purpose, to acquire the necessary software to be embedded with the system, they entered into an agreement with MS, whereby they were authorized to procure off-shelf MS OS software, which also provided them the right to replicate into individual hard discs installed later into the Thin Clients. The software would be operational or functional only with affixation of the stickers i.e. COAs procured separately for each of the Thin Clients from the authorized MS distributors. Clause ‘m’ of the ‘Licence Grants and Limitations’ makes it clear that the appellant shall not advertise, provide a separate price for, or otherwise market or distribute the Licensed products or any images as a separate item from the Embedded system. Merely by affixing the stickers / labels providing authenticity to software loaded to each of the Thin Clients cannot be construed as a ‘service’ received by the appellant under the category of ITSS as held by the Commissioner in the impugned order - in the absence of a transfer of copyright of the software but only on mere right to use the software as clarified in the aforesaid circulars in explaining the scope of the levy as ‘service' under ITSS, distinguishing the same from levy of excise duty and applicable customs duty being Information Technology software falling under Chapter 85 of Central Excise Tariff Act, 1985 or CTA,1985 as the case may be, the import of stickers/labels, later affixed to the Thin clients cannot considered as a ‘service’ and attract levy under ITSS. There are merit in the contention of the learned senior advocate for the appellant that the whole transaction/activity including the installation of the software and later affixing stickers / labels to the Thin Clients procured / purchased on HSS basis from M/s. Priya Limited are in the nature of ‘sale’ and not service. Consequently, demand of service tax on reverse charge basis on the Appellant cannot be sustained. Time Limitation - suppression of facts or not - HELD THAT:- The stickers / labels have been imported by the appellant by filing relevant Bills of Entry from time to time and the said stickers/labels are assessed as ‘goods’ by the Customs department, which are later warehoused as per the procedure under the Customs Act and the Rules made thereunder. In these circumstances, allegation of suppression of facts cannot be sustained. The appeal succeeds both on merit as well as on limitation.
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