Post globalization, many software giants have come into the market for the sale of software & its installation services. But one could get in a fix if the supply is not identified & GST is not levied accordingly.
Also many software techies provide such services outside India to their customers. Thus many practical difficulties arise as to whether the same would be treated as export of goods, export of services or not an export.
Now software related companies generally provide two kinds
1. Product License key
2. Installation service
Issue No. 1 : GST on Software sales – Whether it is a goods/service and composite/mixed supply?
Now the question arises as whether it is a good or a service? Whether HSN code is required or SAC? Is it a mixed or a composite supply?
Composite supply as per Section 2(30) means a supply
- Made by a taxable person
- To a recipient
- Consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business one of which is a principal supply.
- Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply, to which any other supply forming part of that composite supply is ancillary.
Mixed supply means
- Two or more individual supplies of goods or services or any combination thereof
- Made in conjunction with each other
- By a taxable person
- For a single price
- Where such supply does not constitute a composite supply
Analysis of the issue:
From the above definitions it is clear that an installation of software cannot take place without the product or the license key. Thus it becomes clear that the principal supply here is the license key which is considered as a good and the installation of the software are the services being offered.
Thus it is treated as a composite supply, principle supply being sale of license key & ancillary supply being the installation service.
Many of you might think it’s a software so it might be a service however as per GST FAQs published by CBIC clearly state that if a pre-developed or pre-designed software is supplied in any medium/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523.
Issue No. 2: GST on Software sales- If supplied outside India, whether treated as export?
Export of goods means taking goods to a place outside India i.e. out of 200 nautical miles out of India.
Export of services has following conditions:
1. Supplier of services is located in India
2. Recipient of services is located outside India
3. Place of supply is outside India
4. Payment of such supply has been received in convertible foreign exchange
5. Supplier of service and recipient are not merely establishments of distinct persons
To seek the treatment of this issue, we need the answer of the first issue as to whether software is a good or a service. Now from the above analysis it is pretty clear that the supply of software is a composite supply, license key being the principal supply of good.
And principal supply being a good, it does not qualify as export as it is not being taken outside India & place of supply where location of supplier or recipient is outside India as per Section 13(3) of IGST Act 2017, is the location where goods are situated at the time of supply of services, when such services are provided by way of electronic means.
CONCLUSION: If a software license key & installation services are being provided outside India then it is a composite supply of goods under HSN 8523 & not treated as export of goods/services.
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The author deals in the matters of international taxation, direct, indirect taxation, & other statutory compliances. She can be reached at [email protected] for any further assistance.
DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of a firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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