vat & service tax – taxability of software

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VAT & SERVICE TAX – TAX-ABILITY OF SOFTWARE & RELATED MATTER OVERVIEW

VALUE ADDED SERVICES: – Liable to Service tax like subscription for pro-chat, premium services etc. If charges for transfer the same shall be liable to VAT.

SALE OF LICENSE– Liable to Service tax if no transfer of right to use while liable for sales tax if transfer for right to use under deemed sale concept. Largely would depend on case to case basis.

ADVICE, CONSULTANCY AND ASSISTANCE ON MATTERS RELATING TO INFORMATION TECHNOLOGY SOFTWARE – Liable to Service tax

Where client SPECIFIC SOFTWARE IS DEVELOPED for the client in such a way that the intellectual property developed belongs to the client/customer (just like a job-work) from the very beginning without the creator retaining any ownership rights over the same, the arrangement would be one of service and not sale of goods. The same has been confirmed under Sasken Communication Technologies Ltd Vs Joint Commissioner of Commercial Taxes, Bangalore (2011 (4) TMI 566 – Karnataka High Court)

CUSTOMISED (BESPOKE) SOFTWARE DEVELOPED AND IMPLEMENTED:- Liable to both Sales tax and Service tax. In this context, one important ruling can be discussed here. The ruling is by foreign court i.e. in case of LevobVerzekeringen BV and OV Bank NV v. Secretary of State for Finance, Netherlands [2012] 174 (ECJ)
wherein it was held that Supply of basic software along with subsequent customisation thereof to meet requirements of customer and training to his employees under a single contract is a single indivisible supply of service and whole of the receipts are liable to service tax on Dominant nature test.