Case Law Details
Infrasoft Tech India Ltd Vs Commissioner of Central Excise (CESTAT Mumbai)
Conclusion: Sale of banking software to a bank was ‘commercial exploitation’ merely because the bank deployed the software in its normal business activities was not correct in the absence of facts that establish otherwise or of any evidence that such was the transaction between assessee and the customers, therefore, demanding service tax on the same was not justified.
Held: Assessee was in the business of perpetual licensing and software licence, sale of third-party software, customisation of software as per requirement of customers and implementation and maintenance of software. The tax ability of `information technology software service’ had its own share of teething problems with various clarifications having been issued pursuant to representation from the trade. The software that was sold on physical media comprised the inherent contents therein along with right to use and the incorporation of the above activity in the enumeration of taxable service appeared to have been intended to levy tax on the ‘intellectual property right’ component as was evident from the two notifications, issued under Central Excise Act, 1944 and Customs Act, 1962, to provide for abatement to the extent of taxability under Finance Act, 1994 on certain portion of the consideration. Assessee claimed that they were not in the business of customizing software and that their developed software was directly utilized by the banking industry which might or might not make adjustments for their own use. The original authority appeared to have come to the conclusion of tax ability by interpreting the commercial exploitation, in the definition of ‘taxable service’, with reference to its lexicographical meaning. Against this, assessee contended that the licence could be utilized only by the recipient of the software who was barred from transferring, or subletting, the software to anyone else. As the scope of usage by the customers did not extend to commercial exploitation, the classification of the activity as `information technology software service’ would not be in order. It also not in dispute that the grant of licence, covered by a separate agreement of the customers, was the effective ‘right to use’ envisaged in section 65(105)(zzzze) of Finance Act, 1994. In the absence of facts that establish otherwise or of any evidence that such was the transaction between assessee and the customers, it was not appropriate for the adjudicating authority to conclude that sale of banking software to a bank was ‘commercial exploitation’ merely because the bank deployed the software in its normal business activities. The specific connotation of ‘right to use’ and the ‘intellectual property rights’ enshrined within it mandated commercial exploitation to be ascertained in an entirely different context, viz., that of reproduction or distribution.
FULL TEXT OF THE CESTAT JUDGEMENT
In the appeal of M/s InfrasoftTech India Ltd against order-inoriginal no. 54,55/ST/RN/CMR/MII/13-14 dated 15th May 2014 of Commissioner of Central Excise, Mumbai – II, covering the period from May 2008 to March 2011, challenge is to the recovery of T 3 ,11,95,070/-, along with interest thereon, and imposition of penalty of like amount on what is claimed to be sale of software developed for their own use and marketed as ‘core banking’ software to their customers which was charged by service tax authorities to be liable as provider of ‘information technology software service’.
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