TMI Blog2015 (11) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriately integrated in the system of the client. In the process the experts will take all necessary steps to provide functional data for the installation of the ERP software and it becomes useful for the client. In the process there is no transfer of any goods involved. Unless the goods is in existence and deliverable so that the right in the goods is transferred, VAT is not attracted. There is no marketable commodity in existence to be sold. Unless such a commodity, whether tangible or intangible, exists there cannot be a sale. The entire consideration received for providing services to the client have been subjected to service tax. Therefore, no portion of the consideration received could be attributed to sale of the software. Therefore, the finding recorded by the Tribunal is based on legal evidence and supported by the legal position as declared by the Apex Court in several judgments referred to in the order. In that view of the matter, we do not see any merits in this revision petition - Decided against Revenue. - STRP No. 215/2011 - - - Dated:- 18-9-2015 - N. Kumar And B. Manohar, JJ. For the Petitioner : By Prof Ravivarma Kumar, Adv. General, along with Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The following questions have been framed for consideration in this Revision Petition : - (1) Whether the Karnataka Appellate Tribunal is justified in giving a finding that ERP software implementation services and in business consultancy services activities carried on by the respondent does not involve any transfer of property in goods and cannot be considered as sale or deemed sale in the course of execution of works contract? (2) Whether the Karnataka Appellate Tribunal is right in setting aside the orders passed by the Assessing Authority - the First Appellate Authority holding that the ERP software implementation and BCS services of the respondent does not fall within the ambit of sale as defined under the KST Act? (3) Whether the services of software developed as per the requirements of the customers on the basic software is development of software or not? 4. The assessee is a registered dealer under the Act. It is engaged in the following activities : - (a) Development and sale of software and net working products, (b) Trading in Computer System; (c) Undertaking of Information Technology related jobs/services. 5. The case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of property in goods. Service tax is also paid on BCS receipts. In both only the service is provided and these two services involve no transfer of property in goods. 7. Prof. Ravivarma Kumar, the learned Advocate General, relying on clause 2 of the agreement which deals with deliverable materials and clause 2.2, where it is categorically stated that IBM will transfer to the customer, IBM's rights in the deliverable materials subject to the conditions mentioned therein, and Clause 2.6 which provides that such rights transferred by IBM to the customer are subject to payment by the customer all amounts due under the agreement, submitted that a clear case of sale of software could be gathered from the agreement. Therefore, he submitted that the finding recorded by the Tribunal ignoring the specific provision in the agreement is erroneous and requires to be set aside. He further submitted that the agreement for providing service on which reliance is placed by the assessee includes code writing involvement. The said code writing constitutes sale of software which is exigible to tax under the provisions of the Act if the assessee is terming this transaction as services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits no case is made out for interference. 10. The Tribunal after referring to the stages in which the ERP software is developed held that configuration is the process under which the developed software purchased by the client is loaded to the system of the client to install the same. In this process certain codification are made to the client's software, so that the client's system accepts it and that codification is done to the existing system of the client and no new software is developed. It held that software cannot be developed without following the 10 stages as referred to in the written submission of the learned State representative. In the instant case such a process of developing software does not take place. The ERP implementation contract is pure service contract as clarified in the circular issued by the CCT and such service would not involve any transfer of property in goods. The technical information provided by the assessee regarding the job of ERP implementation shows that no software is developed by the assessee. Whatever codification is done in the existing system of the customer, it is useful only to the customer and it cannot be transferred to others ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCY SERVICES VS. STATE OF A.P. reported in (2005) 1 SCC 308, it is inconceivable that a works contract involving transfer of property in goods can come into existence. What the assessee adds by way of machine readable instructions inserted in the gaps in the proprietary ERP software purchased by the customer/client before hand does not constitute goods because those instructions are not described in the contract between the assessee and the concerned customer/client. Those instructions are not capable independently of being possessed, marketed or transferred by the customer to anyone else. On the contrary ERP software installed could be deleted at a click of button needs to be considered at this juncture. There is no marketable commodity in existence to be sold and unless such commodity whether tangible or intangible exists there cannot be a sale or works contract. Therefore, they proceeded to set aside the order passed by the lower authorities and granted the relief. 11. In this regard this Court had an occasion to consider almost identical issue in the matter which was heard along with this Revision Petition in W.P. Nos. 57023- 57070/2013 in the case of INFOSYS LIMITED vs THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is with the software developer, the implementation process is a pure service rendition and does not involve any transfer of property. If any source coding or scripting is done during the process of implementation, the ownership or copyright or any proprietary right would not vest with the software developer. It works purely as a hired labour. The ownership vests at all point of time with the employer who had issued the assignment. In those circumstances, since there is no transfer of ownership or the licence to use the software (deemed sale), it is a pure service contract. There is no sale of goods. It is a case of rendering service and is liable to service tax only. 12. Admittedly, in this case, the integration process of the developed ERP software is undertaken by the assessee by deputing ERP implementation team to render ERP implementation service. What this team does is, they install the ERP software, integrate it and implement at the client's end. This implementation is performed not only by the assessee's personnel but also along with the employees of the client. The members of the ERP Software implementation team of the assessee play various roles in the ERP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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