Development of customized software is not works contract and hence not subject to levy of VAT under Karnataka Value Added Tax Act, 2003

M/s Sasken Communication v. Joint Commissioner, Commercial Taxes & Ors (Karnataka High Court) –  Writ Appeal No. 90-101/ 2011 – Decided on

The assessee is a company engaged in the development of software and export and providing software services. During the course of verification of the documents  submitted by the assessee for the purpose of the  Karnataka Value Added Tax Act, 2003, it was found that in addition to export of software, the assessee also rendered services to  domestic clients. After setting out the nature of activities carried out by the assessee, it was concluded that the Company‟s activities involved high end work of development in various fields and thus qualified as a works contract. It was also concluded that the development of software attracts levy of  Karnataka Value Added Tax Act, 2003 as works contract. The writ petition preferred by the assesse before the Single Judge of the High Court was dismissed on the grounds of availability of alternate remedy. The assessee filed an appeal before the Division Bench of the High Court.

On Appeal Division Bench of the High has held as under:-

The contract for development of software in question are not works contract but contract for service simplicitor and hence not liable to tax under the  Karnataka Value Added Tax Act, 2003. The contract for development of software is not a composite contract consisting of a contract of service and contract for sale of goods. It is an indivisible contract of service only.

Full text of The judgement – Download

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