In a relief to antivirus software developers, the Supreme Court on Friday ruled that the right to use Quick Heal Antivirus software would amount to ‘deemed sale,’ thus not liable to service tax, as sought by the revenue authorities.
Upholding the Customs Excise Service Tax Appellate Tribunal’s January 2020 judgment that held Quick Heal Antivirus software to be ‘goods’ and the transaction that results in the right to use the software would amount to deemed sale,’ a Bench comprising justices Abhay S Oka and JB Pardiwala said the artificial segregation of the transaction 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,” the apex court said.
The department had appealed against the tribunal’s order that had ruled in favour of Quick Heal Technologies that supplied antivirus software along with the license code/product code either online or on the replicated CDs/DVDs to the endcustomers in India.
The tribunal had held that the antivirus software did not have an element of interactivity and the prepackaged/canned software would be treated as goods. Once the software is put on a medium like a CD and then sold, such software would be treated as goods, it said, adding that the Central Board of Excise & Customs guidelines of July 2012 clarified that the prepackaged/canned software would not be goods even if there was a licence.
The Directorate General of Central Excise Intelligence had asked the assessee to pay service tax of Rs 62.73 crore on the taxable value of around Rs 531 crore on the transactions with the endcustomers to supply the license codes/keys of Quick Heal brand Antivirus Software in the retail packs between March 2011 and March 2014. While the demand was confirmed by the Additional Director General (Adjudication), the tribunal had quashed it.
Citing its earlier judicial decisions, the SC judgment stated that the settled essential requirement of a transaction for the transfer of the right to use the goods are – it is not the transfer of the property in goods, but it is the right to use the property in goods; the tax is not on the delivery of the goods used, but on the transfer of the right to use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use; and in the transaction for the transfer of the right to use goods, delivery of the goods is not a condition precedent, but the delivery of goods may be one of the elements of the transaction; the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner (transferor) of the goods, etc.