TMI Blog2024 (4) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of packed Antivirus Software to the end user by charging license fee would amount to a provision of service and would not be a sale. Thus, as a similar End User Licence Agreement was executed in the present case, the decisions of the Tribunal and the Supreme Court in Quick Heal Technologies would apply to the facts of the present appeal. The adjudicating authority was not justified in requiring the appellant to discharge service tax liability on transactions with end users for supply of license code/keys of Kaspersky Antivirus Software in retail packs under section 65(105)(zzzze) of the Finance Act. In view of the decision of the Tribunal and the Supreme Court in Quick Heal Technologies, the order dated 29.02.2016 passed by the Additional Director General deserves to set aside and is set aside - Appeal allowed. - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Shri Vikram Hegde and Shri Jagrit Vyas, Advocates for the Appellant Shri Harshvardhan, Authorised Representative for the Department ORDER M/s. Sakri IT Solutions Pvt. Ltd.[the appellant] seeks to assail the order dated 03.03.2016 passed by The Additional Director General (Adjudication) Delhi-I [t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made against the appellant in the show cause notice are as follows: 15. Investigations conducted against M/s. SISPL has revealed that during the period 01.04.2012 to 30.09.2013, M/s. SISPL had supplied Kaspersky Antivirus software key/codes in retail packs to the end-user through dealers/distributors without discharging their service tax liability on such transactions. Packaged antivirus software consists of license code which assists the end-user for receiving future updates of antivirus software electronically direct from the antivirus software owner for a certain period depending on the license to use the antivirus software. The end-user is provided with the temporary (non-exclusive) right to use the antivirus software supplied electronically which is not treated as deemed sale under Article 366(29A)(d) of the Constitution. Thus, the supply of packaged antivirus software to the end user by charging license fee as per end user license agreement amounts to provision of service and not sale. The dominant nature of such transaction is provision of service and not sale in the light of Hon ble Supreme Court s decision in the BSNL case reported as 2006(2) S.T.R. 161 (S.C.). xxxxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware, the terms and conditions of the license to use such software would have to be seen to come to the conclusion as to whether the license to use packaged software involves transfer of 'right to use' such software in the sense the phrase has been used in sub-clause (d) of article 366(29A) of the Constitution. In case a license to use pre-packaged software imposes restrictions on the usage of such licenses, which interfere with the free enjoyment of the software, then such license would not result in transfer of right to use the software within the meaning of Clause 29(A) of Article 366 of the Constitution. Every condition imposed in this regard will not make it liable to service tax. The condition should be such as restraints the right to free enjoyment on the same lines as a person who has otherwise purchased goods is able to have. Any restriction of this kind on transfer of software so licensed would tantamount to such a restraint. It has already been observed that the nature of restrictions in this case are such which do not make it a case of transfer of right to use the goods. Therefore it is a case of transfer of goods by way of hiring, leasing, licensing or any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised representative appearing for the department have been considered. 12. As noticed above, the adjudicating authority rejected the contention of the appellant that the Kaspersky Antivirus Software supplied in CD form, being canned software, would be goods and, therefore, not liable to service tax. The adjudicating authority held that the appellant provided information technology software service by providing License Keys/codes of Antivirus Software in retail packs and the appellant was complicating the matter to merely evade payment of service tax. 13. In Quick Heal Technologies Limited, a Division Bench of this Tribunal examined a similar controversy. The show cause notice that was issued to the appellant therein alleged that the appellant had supplied Quick Heal brand Antivirus Software key/codes to the end users through dealers/distributors without discharging the service tax liability on such transactions. It was further stated that the end user was provided with a temporary/ non-exclusive right to use the Antivirus Software as per the conditions contained in the End User License Agreement and would, therefore, not be treated as deemed sale under article 366(29A) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal computer and that it has also a parallel control feature. These features, according to the Adjudicating Authority, need a command by the user to the software and, therefore, it is interactive. 29. It is not possible to accept this finding. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for Service Tax containing the official guidelines for new system of levy of Service Tax on the basis of negative list w.e.f. 1 July, 2012 also needs to be referred to. xxxxxxxxx. 38. A perusal of the aforesaid guidelines would indicate that after making a reference to the judgment of Supreme Court in Tata Consultancy Services, it mentions that a transaction would be in the nature of sale of goods when a pre-packaged or Canned Software is sold, and no service tax would be leviable. However, a license to use the software which does not involve the transfer of right to use would neither be a transfer of title in goods nor a deemed sale of goods. Such an activity would fall in the ambit of definition of service . Thus, if a pre-packaged or Canned Software is not sold but is transferred under a license to use such software, the terms and conditions of the license to use such software would have to be seen to arrive at a conclusion whether the license to use the packaged software involves a transfer of right to use such software in the sense the phrase has been used in sub- clause (d) of article 366(29A) of the Constitution. The guidelines also provide that in case a license to use pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to use the software/RDM service from the date of the activation of the license till the date of its expiry. The Tribunal also took into consideration the fact that the licensee is also entitled for the updates and the technical support. In view of the Tribunal, the right to use the software would amount to the deemed sale . The Tribunal rejected the contention of the revenue that the transaction would not be covered under sub-clause (d) of the Article 366(29A) of the Constitution. xxxxxxxxxx 42. Tata Consultancy Services (supra) was a case in which the specific issue of computer software packages was considered as is the concern in the present case also. There was, however, a distinction drawn insofar as the uncanned software and canned software alternatively termed as unbranded and branded is concerned. The distinction is in that a canned software contains programmes which can be used as such by any person purchasing it, while an uncanned software is one prepared for a particular purchaser s requirements by tweaking the original software to adapt to the specific requirements of a particular entity. While a canned software could be sold over the shelf, an uncanned softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is goods , then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to deemed sale which would not attract service tax. 56. In view of the aforesaid, we have reached to the conclusion that the impugned order of the Tribunal suffers from no jurisdictional or any other legal infirmity warranting any interference at our end in the present appeal. (emphasis supplied) 17. While deciding the Civil Appeals filed by the department to assail the order of the Madras High Court, the Supreme Court observed as follows: 70. These appeals should succeed in the light of the reasoning assigned by us while dismissing the Civil Appeal (Diary No. 24399 of 2020), as above. 71. However, while allowing these appeals, we may only observe that in the case of M/s. Infotech Software Dealers Association v. Union of India (supra) the challenge was to the validity of Section 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Software's proprietary notices. You will maintain records of the number and location of all copies of the Software and Documentation and will take all reasonable precautions to protect the Software from unauthorized copying or use. 1.1.2. If you sell the Client Device on which the Software is installed, you will ensure that all copies of the Software have been previously deleted: 1.1.3. You shall not decompile, reverse engineer, disassemble or otherwise reduce any part of this Software to human readable form nor permit any third party to do so. The interface information necessary to achieve interoperability of the Software with independently created computer programs will be provided by Kaspersky Lab on request on payment of its reasonable costs and expenses for procuring and supplying such information. In the event Kaspersky Lab notifies you that it does not intend to make such information available for any reason, including (without limitation) costs, you shall be permitted to take such steps to achieve inter operability provided that you may only reverse engineer or decompile to the extent permitted by law, 1.1.4. You shall not, nor permit any third party to copy (other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have obtained. This licence authorizes you to make or download one copy of the Documentation for each additional copy authorized by the volume licence, provided that each such copy contains all of the Document s proprietary notices. 2. Term. This Agreement is effective for the period specified in the Key File (the unique file which is required to fully enable the Software, plase see Help/about Software or Software about, for Unix/Linux version of the Software see the notification about expiration date of the Key File) unless and until earlier terminated as set forth herein. The Agreement will terminate automatically if you fail to comply with any of the conditions, limitation or other requirements described herein. Upon any termination or expiration of this Agreement, you must immediately destroy all copies of the Software and the Documentation. You may terminate this Agreement at any point by destroying all copies of the Software and the Documentation. 3. Support. (i) Kaspersky Lab will provide you with the support services ( Support Services ) as defined below for a period of one year on: (a) Payment of it s then current support charge; and (b) Successful completion of the Suppor ..... 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