TMI Blog2020 (2) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Supreme Court in State Bank of India v. Collector of Customs, Bombay [2000 (115) ELT 597 (SC)] that 10. The purpose for the Press Note is two fold: (1) to bring down the prices of the imported software and (2) to save precious foreign exchange outflow on several copies of imported software. With this object in view, Central Government decided to allow duplication/reproduction of imported software in India. That being so duplication will not attract any excise duty. The royalty payable on duplicate copies of the software will be paid with the foreign exchange arranged by the party. No custom duty will be leviable on the royalty paid. But then the Indian party will ensure that the royalty paid for each copy is not more than what is being charged by the manufacturer/owner from other customers elsewhere in the world. Master copy imported for duplication purposes will be assessed to customs duty as per existing procedure. From the reading of the press note, it is apparent that it would apply when there is commercial exploitation of the imported software. should apply to them. 4. It is also contended further that there is no commercial exploitation by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14 or the additional right mentioned in Sub-clause (ii) of Clause (b) of the section which relates to a computer programme and, therefore, what JTM or any other cellular operator has acquired under the agreement is not a copyright but is only a copyrighted article. 162. A conjoint reading of the terms of the supply contract and the provisions of the Copyright Act, 1957 clearly shows that the cellular operator cannot exploit the computer software commercially which is the very essence of a copyright. In other words a holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he has acquired cannot be considered as a copyright. In that case, it can only be said that he has acquired a copyrighted article. A small example may clarify the position. The purchaser of a book on income-tax acquires only a copyrighted article. On the other hand, a recording company which has recorded a vocalist has acquired the copyright in the music rendered and is, therefore, permitted to exploit the recording commercially. In this case the music recording company has not merely acquired a copyrighted article in the form of a recording, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjudicating authority. 5. According to Learned Authorised Representative, the product of the appellant is covered by section 65(53a) of Finance Act, 1994 defining information technology software as any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment; and as the show cause notices have enumerated the various activities, all of which lie within the ambit of the said definition, the failure to crystalize the sub-clause is not fatal to the proceedings for which reliance is placed on the decision of the Hon ble Supreme Court in Collector of Central Excise, Calcutta v. Pradyumna Steel Ltd [1996 (82) ELT 441 (SC)]. Further, according to him, perpetual licensing of software can be inferred from the contract which explicitly permits commercial exploitation and that tweaking of the generic product for use by the banking industry to take care of new requirements constitutes customized software which is within the scheme of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer or the creator keeps back the copyright of each software, be it canned, packaged or customised, and what is transferred to the network subscriber, namely, the members of the association, is only the right to use with copyright protection. By that agreement, even the developer does not sell the software as such. By that Master End-User License Agreement, the members of petitioner-association again enter into an End-User License Agreement for marketing the software as per the conditions stipulated therein. In common parlance, end user is a person who uses a product or utilises the service. An end user of a computer software is one who does not have any significant contact with the developer/creator/designer of the software. According to Webster s New World Telecom dictionary, an end user is the ultimate user of a product or service, especially of a computer system, application or network. On a careful reading of the above, we are of the considered view that when a transaction takes place between the members of ISODA with its customers, it is not the sale of the software as such, but only the contents of the data stored in the software which would amount to only service. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware 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. The original authority appears to have come to the conclusion of taxability by interpreting the commercial exploitation, in the definition of taxable service , with reference to its lexicographical meaning. Against this, the contention of the appellant is that the licence can be utilized only by the recipient of the software who is barred from transferring, or subletting, the software to anyone else. As the scope of usage by the customers did not extend to commercial exploi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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