# COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL TECHNOLOGIES LIMITED

- **Citation:** [2022] 17 S.C.R. 930
- **Court:** Supreme Court of India
- **Decided:** 2022-08-05
- **Case number:** Civil Appeal No. 5167 of 2022
- **Bench:** Abhay S. Oka, J. B. Pardiwala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-service-tax-delhi-v-quick-heal-technologies-limited-35764
- **Pages:** 41

## Headnote

Service Tax - Finance Act, 1994 - s.65(105)(zzzze) and 66E
- Constitution of India -Art.366(29A) - Respondent (Assessee)
engaged in supply of Quick Heal Antivirus Software license key/
code along with replicated CDs/DVDs in the retail packs (i.e.
Information Technology Software Service) through its dealers/
distributors to the end customers in India -Contention of revenue
that transaction pertaining to software can be divided into two
components (i) sale of CD, & (ii) supply of updates - Respondent
argued that the transaction cannot be bifurcated into two
components - Held: Once a lumpsum has been charged for the sale
of CD (as in the case on hand) and sale tax has been paid thereon,
the revenue thereafter cannot levy service tax on the entire sale
consideration once again on the ground that the updates are being
provided - The artificial 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 - 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.
Disposing of the appeals, the Court
Held : 1.1 It is evident that the Tribunal laid much emphasis
on the fact that in accordance with the agreement the licensee
has the right to use the software subject to the terms and the
conditions laid therein. The Tribunal took notice of the fact that
in accordance with the agreement the licensee is 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
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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 subclause (d) of the
Article 366(29A) of the Constitution. [Para 34][951-E-G]
1.2 The definition of "service" as above makes it clear that
the service will not include those activities which includes transfer,
delivery or supply of any goods which is deemed to be sale within
the meaning of Clause (29A) of Article 366 of the Constitution.
[Para 36][953-C-D]
1.3 The settled essential requirement of a transaction for
the transfer of the right to use the goods are (i) it is not the
transfer of the property in goods, but it is the right to use the
property in goods (ii) Article 366(29A)(d) read with the latter
part of the clause (29A) which uses the words, "and such transfer,
delivery or supply"... would indicate that 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; (iii) 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;
(iv) the effective or general control does not mean always physical
control and, even if the manner, method, modalities and the time
of the use of goods is decided by the lessee or the customer, it
would be under the effective or general control over the goods;
(v) 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, and (vi) during the period of contract exclusive right
to use goods along with permits, licenses, etc., vests in the lessee.
[Para 52][964-B-F]
1.4 The sum and substance of the ratio of the case of BSNL
as discernible is that the contract cannot be vivisected or split
into two. Once a lumpsum has been

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SUPREME COURT REPORTS
[2022] 17 S.C.R.
 [2022] 17 S.C.R. 930
930
COMMISSIONER OF SERVICE TAX DELHI
v.
QUICK HEAL TECHNOLOGIES LIMITED
(Civil Appeal No. 5167 of 2022)
AUGUST 05, 2022
[ABHAY S. OKA AND J. B. PARDIWALA, JJ.]
Service Tax - Finance Act, 1994 - s.65(105)(zzzze) and 66E
- Constitution of India -Art.366(29A) - Respondent (Assessee)
engaged in supply of Quick Heal Antivirus Software license key/
code along with replicated CDs/DVDs in the retail packs (i.e.
Information Technology Software Service) through its dealers/
distributors to the end customers in India -Contention of revenue
that transaction pertaining to software can be divided into two
components (i) sale of CD, & (ii) supply of updates - Respondent
argued that the transaction cannot be bifurcated into two
components - Held: Once a lumpsum has been charged for the sale
of CD (as in the case on hand) and sale tax has been paid thereon,
the revenue thereafter cannot levy service tax on the entire sale
consideration once again on the ground that the updates are being
provided - The artificial 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 - 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.
Disposing of the appeals, the Court
Held : 1.1 It is evident that the Tribunal laid much emphasis
on the fact that in accordance with the agreement the licensee
has the right to use the software subject to the terms and the
conditions laid therein. The Tribunal took notice of the fact that
in accordance with the agreement the licensee is 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
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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 subclause (d) of the
Article 366(29A) of the Constitution. [Para 34][951-E-G]
1.2 The definition of "service" as above makes it clear that
the service will not include those activities which includes transfer,
delivery or supply of any goods which is deemed to be sale within
the meaning of Clause (29A) of Article 366 of the Constitution.
[Para 36][953-C-D]
1.3 The settled essential requirement of a transaction for
the transfer of the right to use the goods are (i) it is not the
transfer of the property in goods, but it is the right to use the
property in goods (ii) Article 366(29A)(d) read with the latter
part of the clause (29A) which uses the words, "and such transfer,
delivery or supply"... would indicate that 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; (iii) 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;
(iv) the effective or general control does not mean always physical
control and, even if the manner, method, modalities and the time
of the use of goods is decided by the lessee or the customer, it
would be under the effective or general control over the goods;
(v) 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, and (vi) during the period of contract exclusive right
to use goods along with permits, licenses, etc., vests in the lessee.
[Para 52][964-B-F]
1.4 The sum and substance of the ratio of the case of BSNL
as discernible is that the contract cannot be vivisected or split
into two. Once a lumpsum has been charged for the sale of CD
(as in the case on hand) and sale tax has been paid thereon, the
revenue thereafter cannot levy service tax on the entire sale
consideration once again on the ground that the updates are being
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD.
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SUPREME COURT REPORTS
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provided. The artificial 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. This is 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. [Para 55][967-E-G]
Tata Consultancy Services v. State of Andhra Pradesh,
(2005) 1 SCC 308 : [2004] 5 Suppl. SCR 1040, Bharat
Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1
: [2006] 2 SCR 823, M/s Infotech Software Dealers
Association v. Union of India, 2010 (20) S.T.R. 289
(Mad.), Associated Cement Companies Ltd. v.
Commissioner of Customs, (2001) 4 SCC 593 : [2001]
1 SCR 608 , 20th Century Finance Corpn. Ltd. v. State
of Maharashtra, (2000) 6 SCC 12 : [2000] 1 Suppl.
SCR 12, Delta International Ltd. v. Shyam Sundar
Ganeriwalla, (1999) 4 SCC 545 : [1999] 2 SCR 541,
Ramdev Food Products (P) Ltd. v. Arvindbhai Rambhai
Patel, (2006) 8 SCC 726 : [2006] 5 Suppl. SCR 521 -
referred to.
Case Law Reference
[2004] 5 Suppl. SCR 1040
referred to
Para 42
[2006] 2 SCR 823
referred to
Para 46
[2001] 1 SCR 608
referred to
Para 42
[2000]1 Suppl. SCR 12
referred to
Para 44
[1999] 2 SCR 541
referred to
Para 54
[2006] 5 Suppl. SCR 521
referred to
Para 54
CIVIL APPELLATE JURISDICTION : Civil Appeal No.5167
of 2022.
From the Judgment and Order dated 09.01.2020 of Customs,
Excise & Service Tax Appellate Tribunal, New Delhi in Service Tax
Appeal No.51175 of 2016.
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With
Civil Appeal Nos.5168-5169 of 2022
Ms. Aishwarya Bhati, ASG, Arvind P. Datar, Sr. Adv., Pratap
Venugopal, Ms. Surekha Raman, Rahul Unnikrishnan, Akhil Abraham
Roy, M/s K J John and Co., Rupesh Kumar, Akshay Amritanshu,
Ameyavikrama Thanvi, Durga Dutt, Ashutosh Jain, Mukesh Kumar
Maroria, Shubhranshu Padhi, Ashish Yadav, Vishal Bansal, Ms.
Rajeshwari Shankar, Advs. for the appearing parties.
The Judgment of the Court was delivered by
J. B. PARDIWALA, J.
1. Since the issues raised in both the captioned cases are the
same, those were taken up for hearing analogously and are being disposed
of by this common judgment.
Civil Appeal (Diary No. 24399 of 2020)
2. Delay condoned.
3. This appeal under Section 35L(b) of the Central Excise Act,
1944 (for short, 'the Act 1944'), as made applicable to the service tax by
Section 83 of Chapter V of the Finance Act, 1994 (for short, 'the Act
1994'), is at the instance of the revenue and is directed against the order
No. 50022/2020 dated 09.01.2020 passed by the Customs, Excise and
Service Tax Appellate Tribunal, New Delhi (for short, 'the Tribunal') in
the Service Tax Appeal No. 51175 of 2016 by which the Tribunal allowed
the appeal filed by the respondent herein (assessee) thereby set aside
the Order in Original dated 28.01.2016 passed by the Additional Director
General (Adjudication) DGCEI, Delhi.
FACTUAL MATRIX
4. For the sake of convenience, the appellant herein shall be
referred to as the "revenue" and the respondent herein shall be referred
to as the "assessee".
5. The assessee is registered with the Service Tax Commissioner,
Pune-III for providing taxable services, inter alia, under the category
of "Information Technology Software Service". The assessee is engaged
in the development of Quick Heal brand Antivirus Software which is
supplied along with the license code/product code either online or on the
replicated CDs/DVDs to the end-customers in India.
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD.
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6. It appears from the materials on record that it came to the
notice of the Directorate General of Central Excise Intelligence
(Headquarters) that the assessee engaged in the development of Quick
Heal brand Antivirus Software had not been paying service tax prior to
01.07.2012 on the services covered under the category of "Information
Technology Software Service" falling under Item No. (vi) of clause
(zzzze) of sub-section (105) of Section 65 of the Act 1994 w.e.f
01.07.2012 on the services covered under the category of "Information
Technology Software Service" under Section 66E(d) of the Act 1994
for providing Quick Heal brand Antivirus Software license key/code
supplied along with the CD/DVD replicated with the Quick Heal brand
Antivirus Software through the dealers/distributors to the end-customers
in India.
7. In the aforesaid context, an inquiry was initiated against the
assessee and at the end of the same, the revenue reached to the conclusion
that the assessee is liable to pay service tax on the transactions with the
end-customers to supply the license codes/keys of Quick Heal brand
Antivirus Software in the retail packs. The revenue reached to the
conclusion that the assessee had failed to pay the service tax on the
consideration received for the supply of the license codes/keys of
Antivirus Software to the end-customers in retail packs during the period
between 01.03.2011 and 31.03.2014.
8. In such circumstances referred to above, a show cause notice
dated 02.02.2015 came to be issued to the assessee by the Additional
Director General, DGCEI (Hqrs.), New Delhi proposing a demand/
recovery of service tax amounting to Rs. 62,73,05,953.36p. (Rupees
Sixty Two Crore Seventy Three Lakh Five Thousand Nine Hundred
Three and paise Thirty Six Only) on the taxable value of Rs.
5,30,94,66,783/- (Rupees Five Arab Thirty Crore Ninety Four Lakh Sixty
Six Thousand Seven Hundred Eighty Three Only) for supplying Quick
Heal Antivirus Software replicated CDs/DVDs in the retail packs (i.e.
Information Technology Software Service) through its dealers/distributors
to the end-customers in India for the period between 01.03.2011 and
31.03.2014 under the proviso to Section 73(1) of the Act 1994 by invoking
the extended period of limitation with interest and penalty.
9. The show cause notice referred to above was adjudicated by
the Additional Director General (Adjudication), DGCEI, Delhi, who, in
turn, confirmed the demand of service tax amount to Rs. 56,07,05,595/-
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(Rupees Fifty Six Crore Seven Lakh Five Thousand Five Hundred Ninety
Five Only) alleged to have been not paid by the assessee on the service
of Information Technology Software Service vide its Order in Original
dated 28.01.2016.
10. The assessee, being aggrieved with the order passed by the
Additional Director General (Adjudication), DGCEI, preferred the Service
Tax Appeal No. 51175 of 2016 before the Tribunal.
11. The Tribunal allowed the appeal filed by the assessee herein
essentially on the following three grounds:-
i.
The antivirus software did not have an element of
interactivity.
ii.
As per the decision of the Supreme Court in the case of
Tata Consultancy Services v. State of Andhra Pradesh,
(2005) 1 SCC 308, ("TCS"), the pre-packaged/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.
iii.
The Central Board of Excise & Customs (CBEC) issued
guidelines when the negative regime was issued on 1.7.2012.
The guidelines clarified that the pre-packaged/canned
software would not be goods even if there was a licence.
12. The revenue, being dissatisfied with the order passed by the
Tribunal, has come up before this Court with the present appeal under
Section 35L(b) of the Act 1944.
13. The revenue has in its memorandum of appeal formulated the
following questions of law for consideration of this Court:-
"(i) Whether the Tribunal is right in holding that the
transaction in the present case results in the right to use the
software and would amount deemed sale?
(ii) Whether the Antivirus Software license key/code supplied
by the respondent along with CD/DVD replicated with Quick
Heal Brand Antivirus Software through dealers/distributors
to the End-Customers is liable to Service Tax?
(iii) Whether the service provided by the respondent is
classifiable under Information Technology Service liable to
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD. [J. B. PARDIWALA, J. ]
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service tax under Section 65(105)(zzzze) of the Finance Act,
1994 prior to 01.07.2012 and under Section 66E(f) of the
Finance Act, 1994 w.e.f. 01.07.2012?
(iv) Whether the transfer of goods by way of hiring, leasing,
licensing or any such manner without transfer of right of use
such goods, is a declared service under clause (1) of Section
66E of the Finance Act, 1994?"
SUBMISSIONS ON BEHALF OF THE REVENUE :
14. The learned counsel appearing for the revenue vehemently
submitted that the Tribunal committed a serious error in passing the
impugned order by relying upon the decision of this Court in TATA
Consultancy Services (supra). He would submit that the question before
this Court in the case of the TATA Consultancy Services (supra) was
whether the canned software sold by the appellants therein could be
termed to be "goods" under the Andhra Pradesh General Sales Tax Act,
1957 and hence, assessable to the sales tax? He submitted that the
principal contention of the appellants before this Court in the case of the
TATA Consultancy Services (supra) was that the canned software was
"intangible property" and hence would not come within the definition of
the "goods". He would submit that the issue was clearly not whether the
canned software was "goods" or "service". He laid much stress on the
fact that no argument was canvassed on the canned software being a
service. Since the question did not pertain to the canned software being
a "service", this Court did not make any comment on whether the canned
software could be a "service". He would submit that in such
circumstances, the Tribunal committed an error in relying on the ratio of
the decision of this Court in the case of TATA Consultancy Services
(supra).
15. The learned counsel would further submit that the entire
transaction of selling or trading of the software can be divided into two
stages:-
(a) Up to the replication of the Master CD by the replicators
under the terms of agreement. This is covered by this Court's
judgment in the case of TATA Consultancy Services (supra).
There rises no dispute of paying duty at this stage, since, the
recording of the software on their CDs and making them
marketable makes it 'Goods' which is chargeable to the Central
Excise Duty;
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(b) The supply to the end-users under a separate End User
Licensing Agreement, consists of 2 parts:
(i) Supply of Antivirus software in the CD.
(ii) Providing electronic updates to the software originally
provided.
16. He would submit that the present dispute is one relating to
part (b) as above of the transaction.
17. Referring to the decision of this Court in the case of Bharat
Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, (for short,
'BSNL'), he would submit that the same deals with the "composite
transaction" of giving telephone connection that involves service and
sale. It was held therein by the majority that it is possible for the State to
tax the sale element provided there is a discernible sale and the "dominant
intention" test is satisfied. To put it in other words, the learned counsel
would submit that the test for a composite contract other than those
mentioned in the Article 366(29A) of the Constitution continues to be
"did the parties have in mind or intend separate rights arising out of the
sale of goods?". If there was no such intention, there is no sale even if
the contract could be disintegrated. According to the learned counsel,
the test for deciding whether a contract falls into one category or the
other is as to what is 'the substance of the contract'. He pointed out that
in the case of BSNL (supra) it was held that what amounts to being
"goods" in the sale transaction remains primarily a matter of contract
and intentions.
18. He placed strong reliance on the decision of the Madras High
Court in the case of M/s Infotech Software Dealers Association v.
Union of India, 2010 (20) S.T.R. 289 (Mad.), wherein the High Court
took the view that the supply of packaged antivirus software to the end
user by charging license fee as per the end user license agreement
amounts service and not sale. The Madras High Court held that for the
purpose of imposition of tax, the nature of transaction should be looked
into.
19. In such circumstances referred to above, the learned counsel
appearing for the revenue, prays that there being merit in his appeal, the
same may be allowed by answering the proposed questions of law in
favour of the revenue and against the assessee.
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD. [J. B. PARDIWALA, J. ]
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SUBMISSIONS ON BEHALF OF THE ASSESSEE :
20. On the other hand, Mr. Arvind P. Datar, the learned senior
counsel appearing for the assessee, vehemently opposed this appeal by
submitting that no error, not to speak of any error of law, could be said to
have been committed by the Tribunal in passing the impugned order. He
would submit that in para 29 of the impugned order the Tribunal rightly
rejected the contention of the revenue that the antivirus software was
interactive. Mr. Datar would submit that the Tribunal rightly held that a
programme could be said to be interactive only when it involves the user
to have exchange of information or when there is action and
communication between the user and the software. The learned senior
counsel gave an example by pointing that the MS Word, Excel, etc. are
interactive softwares which can be run only after the receipt of the
instructions from the user. On the other hand, there is no interactivity in
an antivirus software as there is no requirement of giving any command
for detecting and removing the virus. In other words, no manual input is
required to operate an antivirus software as it acts automatically upon
detecting any virus. He would submit that the antivirus software which
is installed in a computer system cannot be treated as an interactive
software.
21. The learned senior counsel thereafter took this Court through
the decision rendered by this Court in the case of TATA Consultancy
Services (supra). The learned senior counsel offered the following
comments on the impact of the decision in the case of TATA Consultancy
Services (supra) :-
"4.1 The question as to whether software can be treated as
goods was referred to a bench of five judges in the aforesaid
TCS case.
4.2 The State of Andhra Pradesh had levied VAT/sales tax on
software CDs, which were packed and sold to customers. This
Hon'ble Court, after extensive consideration of India and
U.S. decisions, held that even though the copyright in a
software program may remain with the originator of the
program, the moment the software is loaded onto a CD and
copies are made and marketed, they become goods, "which
are susceptible to sales tax".
4.3 There is no difference between sale of a software program
on a CD/floppy disc or the sale of music or film CD. It
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categorically held that the software and the medium cannot
be split up in a sale of a computer software, which is a sale of
goods. Apart from the judgment of Justice Variava, Justice
S.B. Sinha gave a concurring opinion giving additional
reasons as to why software, which is put on a medium and
sold, is in the nature of a commodity and has to be treated as
goods. The learned judge also held that the definition of
canned software would be exigible to sales tax.
4.4 In the present case, the impugned CESTAT order has
reproduced several paragraphs from the TCS ruling and
concluded in paragraph 35/Page 54, Vol. I that once software
is put in a media and marketed, it would become goods.
4.5 The negative regime of service tax came into force on
July 1, 2012. Barring specific exemptions, almost all contracts
were to be treated as services when they were supplied for
consideration. Service tax was sought to be levied on
Information and Technology Service, under section 65(53a)
which reads as follows:
(53a) "information technology software" means 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;
4.6 Similarly, the definition of taxable services is contained
in section 65(105) (zzzze) which are also reproduced earlier.
4.7 While the above definitions were prevailing prior to
01.07.2012, section 66E(d) - provided for declared service
under the new negative regime and read as follows:
"development, design, programming, customization,
adaptation, upgradation, enhancement, implementation of
information technology software"
4.8 Further, section 65B (28) defined "information technology
software" which was almost identical to the earlier definition
under section 65 (63a)."
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD. [J. B. PARDIWALA, J. ]
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22. The learned senior counsel thereafter made his submissions
on the CBEC Circular/Education Guide. Following comments have been
offered as regards the said Circular in the written note furnished to this
Court:-
"5.1 After the negative regime came into force on 1.7.2012,
reproduced above, the CBEC Education Guide issued the
following guidelines:
(i) Pre-packaged or canned software would not be covered
by the entry relating to information technology software. This
is because such software as "goods" as held by the Supreme
Court in the TCS case. The guidelines specifically reproduced
the text of the Supreme Court ruling.
(ii) It then concluded that if pre-packaged or canned software,
were sold, then the transaction would be in the nature of a
sale of goods and no service tax would be levied."
23. The learned senior counsel thereafter submitted as regards
the excise duty/tariff entry and exemption notifications as under :-
"6.1 It is pertinent to note that S. No. 84A of the third schedule
to the Central Excise Act, 1944, deals with entry 8523 80 20
corresponding to "Packaged software or canned software".
The Explanation provided thereunder defined "packaged
software or canned software" as a software which is intended
for sale or capable of being sold off-the-shelf.
6.2 Moreover, Notification No:14/2011 CE dated 01-03-2011
adopted this definition and exempted excise duty on such
"packaged software or canned software"."
24. He vehemently submitted that the transaction cannot be
bifurcated into two components as suggested by the revenue i.e. (i) sale
of CD, and (ii) supply of updates. In this regard, he submitted as under :-
"7.1 During the arguments, the Department submitted that
apart from the sale of CD, the updates which were to be
provided under the contract would amount to service. It is
submitted that this is incorrect because the pre-packaged
antivirus software which is sold in the box has a condition of
sale that updates for the period of license would be also
provided to the person who has purchased the goods without
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any further consideration. These updates are part and parcel
of the sale of software itself and cannot be divorced from the
transaction and treated separately as a service.
7.2 Indeed, every pre-packaged software that was sold in a
box, where there it is Tally or Word or Excel, would also
include supply of updates for the period of licence.
7.3 Further, section 65B (44) defined service to mean any
activity carried out by a person for a consideration and
includes a declared service. In the present case, no separate
consideration is charged for the updates which are part and
parcel of the sale of goods itself. Consequently, even if the
updates are treated as declared services under section 66E(d),
no consideration is charged for such service separately.
7.4 In BSNL v. Union of India it was categorically held that
the contract cannot be vivisected or split out. Once a lumpsum
has been charged for the sale of CD and sales tax has been
paid thereon, the Department cannot levy service tax on the
entire sale consideration once again on the ground that
updates are being provided."
25. In the last, the learned senior counsel submitted that the payment
of VAT and service tax are mutually exclusive. He would submit that :-
"8.1 It is well settled that sales tax and VAT is covered by
Entry 54 of List-II in the VII Schedule of the Constitution.
Only State Legislatures can levy VAT on the sale of goods. On
the other hand, service tax is leviable under the Finance Act,
1994 (as amended) on the provision of service and such levy
is permissible under Entry 97 of List-I.
8.2 It is also well settled that there could be no overlapping
of taxes as the taxing powers have been carefully split between
Union and the State. Accordingly, the taxation of goods has
been allotted to the State Legislatures while taxing of service
is retained by the Centre.
8.3 In Imagic Creative Pvt. Ltd. v. CCT, (2008) 9 STR 337
(SC) : (2008) 2 SCC 614, this Court held that payment of VAT
and service tax are mutually exclusive. After the TCS judgment,
the controversy was put to rest in intellectual property where
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
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software or music or film which has been put on a medium
such as a CD will be treated as goods and consequently can
subject only to sales tax/VAT."
26. In such circumstances referred to above, the learned senior
counsel appearing on behalf of the assessee, prays that there being no
merit in the present appeal, the same may be dismissed.
ANALYSIS :
27. Having heard the learned counsel appearing for the parties
and having gone through the materials on record, the only question that
falls for our consideration is, whether the Tribunal committed any error
in passing the impugned order?
28. Before we advert to the rival submissions canvassed on either
side, we must look into some of the reasons assigned by the Tribunal
while allowing the appeal preferred by the assessee against the order of
the adjudicating authority. We quote:-
"25. The contention of the Appellant is that the software
developed by it can neither be manipulated nor does it provide
any interactivity to a user and, therefore, does not satisfy the
requirement of "information technology software". According
to the Appellant, once the computer system is booted, the
Antivirus Software begins its activity of detecting the virus
and continues to do so till the time the computer system remains
booted. Thus, there is no interactivity or requirement of giving
any commands to the software to perform the function of
detecting and removing virus from the computer system. The
Appellant further contends that the software developed by it
is quite distinct from software like ERP, EXCEL, MS Word,
where there is a constant to and from interaction between the
user and the computer system containing the said software.
These softwares perform their function only after receipt of
input from the user, which is not the case in the Antivirus
Software developed by the Appellant.
x
x
x
28. The Adjudicating Authority, however, has not accepted
the contention of the Appellant and has observed that the
software can issue commands to scan drives, both internal
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and external and that it has an interface with the user to
tune-up the personal 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 continues
interaction between the user and the computer system and
these softwares perform only after receipt of input from the
user.
30. Such being the position, no service tax was leviable under
section 65(105)(zzzze) of the Act prior to 1 July, 2012. Even
after 1 July, 2012 the definition of "information technology
software" under section 65B(28) remained the same and so
also service tax was not leviable.
31. The matter can be examined from another angle. Section
65B (51) defines a "taxable service" to mean any service on
which service tax is leviable under section 66B. Section 66B
provides that there shall be levied service tax on the value of
all services, other than those services specified in the negative
list, provided or agreed to be provided in the taxable territory
by one person to another and collected in such manner as
may be prescribed. Section 65B (44) define "service" to mean
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any activity carried out by a person for consideration, and
includes a declared service, but shall not include, amongst
others, an activity which constitutes merely such transfer,
delivery or supply of any goods which is "deemed to be a
sale" within the meaning of clause (29A) of article 366 of the
Constitution."
29. The Tribunal thereafter proceeded to consider the decision of
this Court rendered in the case of TATA Consultancy Services (supra).
Upon analysis of the ratio of the said decision, the Tribunal recorded the
following findings :-
"35. It is clear from the aforesaid decision of the Supreme
Court in Tata Consultancy Services that intellectual property,
once it is put on the media and marketed could become
"goods" and that a software may be intellectual property and
such intellectual property contained in a medium is purchased
and sold in various forms including CDs.
36. Section 65B (44) of the Act also excludes from the
definition of "service" any activity which constitutes merely
such transfer, delivery or supply of any goods which is deemed
to be a sale within the meaning of clause (29A) of article 366
of the Constitution. As noticed above, the Supreme Court in
Tata Consultancy Services held that Canned Software
supplied in CDs would be "goods" chargeable to sales tax/
VAT and no service tax can be levied."
30. The Tribunal thereafter, in para 37 of its order, considered the
CBEC Education Guide for service tax containing the official guidelines
for new system of levy of service tax. After due consideration of the
same, it recorded the following findings in para 38:-
"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
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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 prepackaged software imposes restrictions on the usage of such
licenses, which restriction interfere with the free enjoyment
of the software, then such a 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. However, every
condition imposed would not make it leviable to service tax.
The condition should be such so as to restrain the right to
free enjoyment on the same lines as a person who has
otherwise purchased goods is able to have."
31. The Tribunal thereafter proceeded to consider the terms of
the agreement to ascertain whether there was transfer of the "right to
use goods". The Tribunal in para 44 of its order recorded the following
relevant provisions of the Quick Heal Internet Security End-User License
Agreement:-
"16. BY USING THIS SOFTWARE OR BY ACCEPTING OUR
SOFTWARE USAGE AGREEMENT POLICY OR ATTEMPTING
TO LOAD THE SOFTWARE IN ANY WAY, (SUCH ACTION
WILL CONSTITUTE A SYMBOL OF YOUR CONSENT AND
SIGNATURE), YOU ACKNOWLEDGE AND ADMIT THAT
YOU HAVE READ, UNDERSTOOD AND AGREED TO ALL
THE TERMS AND CONDITIONS OF THIS AGREEMENT,
THIS AGREEMENT ONCE ACCEPTED BY "YOU"[ AS AN
INDIVIDUAL (ASSUMING YOU ARE ABOVE 18 YEARS AND/
OR HAVING LEGAL CAPACITY TO ENTER INTO AN
AGREEMENT), OR THE COMPANY OR ANY LEGAL ENTITY
THAT WILL BE USING THE SOFTWARE (HEREINAFTER
REFERRED TO AS YOU' OR YOUR' FOR THE SAKE OF
BREVITY] SHALL BE A LEGALLY ENFORCEABLE
AGREEMENT BETWEEN YOU AND QUICK HEAL
TECHNOLOGIES PRIVATE LIMITED, PUNE, INDIA
COMMISSIONER OF SERVICE TAX DELHI v. QUICK HEAL
TECHNOLOGIES LTD. [J. B. PARDIWALA, J. ]
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(HEREINAFTER REFERRED TO AS "QUICK HEAL") AND
YOU SHALL HAVE THE RIGHTS TO USE THE SOFTWARE
SUBJECT TO THE TERMS AND CONDITIONS MENTIONED
IN THIS AGREEMENT OR AS AMENDED BY QUICK HEAL
FROM TIME TO TIME. IF YOU DO NOT AGREE TO ALL
THE TERMS AND CONDITIONS BELOW, DO NOT USE THIS
SOFTWARE IN ANY WAY AND PROMPTLY RETURN IT OR
DELETE ALL THE COPIES OF THIS SOFTWARE IN YOUR
POSSESSION.
In consideration of payment of the License Fee, which is a
part of the price, evidenced by the Receipt. Quick Heal grants
the Licensee, a non-exclusive and non-transferable right.
Quick Heal reserves all rights not expressly granted, and
retains the title and ownership of the software, including all
subsequent copies in any media. This software and the
accompanying written materials are the property of Quick
Heal and are copyrighted. Copying of the software or the
written material is expressly forbidden. In addition to this
security software, Quick Heal offers you Quick Heal Remote
Device Management Services to manage your device(s).
Quick Heal reserves all rights not expressly granted, and
retains the title and ownership of the software, including all
subsequent copies in any media, This software and the
accompanying written materials are the property of Quick
Heal and are copyrighted.
1. DEFINITIONS
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B. "License period" means the period as more particularly
described in this Agreement.
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G. "Updates" means collections of any or all among virus
definition files including detections and solutions for new
viruses along with the corrections, improvements or
modifications to the software.
2. DO's & DON'TS
You can:
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A. make copy of the software for backup purpose or for the
purpose of sharing through various means (and such backup
copy must be destroyed when you lose the right to use the
Software or is terminated for any other reason according to
the legislation in force in the country of your principal
residence or in the country where You are using the software)
and replace lost, destroyed, or becomes unusable.
B. use one copy of the software on a single computer. In case
of multiuser pack, use of the software only on the said number
of systems as mentioned on the packaging.
C. install the software on a network, provided you have a
licensed copy of the software for each computer that can
access the software over that network.
D. avail Quick Heal RDM service to manage your device (a
maximum of 10 devices in one account.)
You cannot:
A. emulate, or adapt any portion of the software.
B. sublicense, rent or lease any portion of the software. C. try
making an attempt to reveal/discover the source code of the
software.
D. debug, decompile, disassemble, modify, translate, reverse
engineer the software.
E. create derivative works based on the software or any
portion thereof with sole exception of a non-waivable right
granted to You by any applicable legislation. F. remove or
alter any copyright notices or other proprietary notices on
any copies of the software.
G. reduce any part of the software to human readable form.
H. use the software in the creation of data or software used
for detection, blocking or treating threats described in the
user manual.
I. use for unlicensed and illegal purpose.
J. remove your user account from Quick Heal RDM service
once registered
K. retrieve deleted location entries and back up data from
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the user account on the Quick Heal RDM service.
L. attempt to gain unauthorized access to Quick Heal RDM
networks.
5. LICENSE PERIOD
A. You are entitled to use this software/ RDM Services from
the date of license activation until the expiry date of the
license.
B. You understand, agree and accept that you are entitled for
the updates and technical support via the Internet and
telephone. Any use of this software/RDM Services for any
other purposes is strictly forbidden and prohibited and Quick
Heal reserves to take any action against such unauthorized
usage.
C. License for use of Quick Heal RDM service to manage
devices shell be valid till your device security software license
is valid.
D. You agree, understand that any unauthorized usage of the
software/ RDM services or breach of any/all terms and
conditions stated herein the Agreement shall result in automatic
and immediate termination of this Agreement and the License
granted hereunder and which may result in criminal and/ Or
civil action by Quick Heal and/ Or its agents against you
including but not limited to right to block the key file/ License
key/ product key and without any refund to You and without
any prior intimation/ notice to you in this regard.
E. If you have acquired the specific language localization of
the software/ RDM service, you will not be able to activate
the software by applying the activation code of other language
localization.
F.