SC: Right to use Quick Heal Antivirus software not subject to service tax

In a relief for antivirus software developers, the Supreme Court ruled on Friday that the right to use Quick Heal Antivirus software would amount to a “deemed sale,” thus not subject to the service tax, as authorities demand. tax.

Affirming the Customs Excise Service Tax Appeal Tribunal’s January 2020 judgment that considered Quick Heal Antivirus software to be “property” and the transaction that gives the right to use the software would amount to a deemed sale,” a bench consisting of Justices Abhay S Oka and JB Pardiwala said that the artificial separation of the transaction into two parts is not defensible in law.

“It is, in essence, a software sale transaction and once it is accepted that the software placed on the CD is ‘goods’, then there can be no separate service element in the transaction. We say this because even otherwise the user is put in full ownership and control of the software. This amounts to a ‘deemed sale’ which would not attract service tax,” the Supreme Court said.

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The department had appealed the court order which found in favor of Quick Heal Technologies which provided anti-virus software along with license code/product code either online or on replicated CDs/DVDs to end customers in India .

The court held that anti-virus software did not have an element of interactivity and that pre-packaged/boxed software would be treated as a commodity. Once the software is placed on a medium such as a CD and then sold, that software would be treated as a commodity, he said, adding that the Central Board of Excise and Customs guidelines of July 2012 clarified that prepackaged/canned software would not be a commodity. even if there was a license.

The Central Excise Intelligence Branch had requested the assessee to pay a service charge of Rs 62.73 crore on the assessed value of approximately Rs 531 crore on transactions with end customers to provide license codes/keys Quick Heal brand antivirus software in retail. packages between March 2011 and March 2014. While the request had been confirmed by the Deputy Director General (adjudication), the court had canceled it.

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Citing its previous court decisions, the SC judgment stated that the established essential requirement of a transaction for the transfer of the right to use the goods is – it is not the transfer of ownership of the goods, but it is is the right to use the property in the goods; the tax does not apply to the delivery of the used goods, but to the transfer of the right to use the goods, regardless of when or whether the goods are delivered for use, provided that the goods must exist to be used ; and in the operation of transfer of the right to use the goods, the delivery of the goods is not a condition precedent, but the delivery of the goods can be one of the elements of the operation; approvals, concessions, licenses and permits relating to the goods would also be available to the user of the goods, even if such licenses or permits are in the name of the owner (transferor) of the goods, etc.

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