Software Maintenance

Deputy Director, Directorate General of Central Excise Intelligence, Kolkata Zonal Unit : 4/2, Karaya Road ( 3rd Floor) Kolkata – 700 017

March 11, 2006

Dear Sir, Sub: Service Tax on “Maintenance, repair or servicing of software” Please refer to your letter no. DGCEIF No. 17/KZU/KOL/ST/06/621 dated 19/1/06 wherein it has been stated by you that our organization is providing service in relation to maintenance, repair or servicing of software and as such we are liable to service tax under the category “Maintenance or repair service”. However we would like to bring to your kind attention that we are not rendering any services in relation to maintenance, repair or servicing of software, hence we are not covered under the category “Maintenance or repair service”. We are developer of software and development and sale of software is not chargeable to service tax. Computer software engineering is excluded from the purview of service tax by virtue of amendment in clause 105(g) of section 65 of Finance Act, 1994, with effect from 10-9-2004, whereby services provided in the discipline of computer software engineering has been excluded from services provided by a consulting engineer in relation to one or more disciplines of engineering. Further Hon’ble Supreme Court in Tata Consultancy Services vs State of Andhra Pradesh as reported in 2004 (178) ELT 22 (SC) / [2004] 271 ITR 0401 (SC) has delivered a landmark judgment on 05-11-2004, in the context of sales tax on computer software. The basic question before the Court was whether or not computer softwares were ‘goods’ and as such, whether sales tax could be charged on sale of computer softwares. The Hon’ble Court, after taking note of several English judgments of foreign Courts referred by the parties, held that softwares, even though intangibles, would be treated as ‘goods’ and accordingly sales tax would be chargeable on the value of software as well as on the media carrying such software. Supreme Court in the above case has observed that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore, sale of computer software falls within the scope of sale of goods. Supreme Court has also observed that they are in agreement with the view that there is no distinction between branded and unbranded software.

In the light of above Apex Court judgement as the sale of software is goods, hence it can not be made liable to service tax. Further regarding your request to furnish information / documents relating to registration, payment of service tax and details of bills raised on account of “Maintenance or repair services”, we would like to reiterate that as we not providing any service in relation to maintenance or repair of software, hence neither any bills have been raised nor we have taken any registration with the service tax authority. We hope that our clarifications stated above will ensure dropping of any further investigation in this respect. Thanking you, Yours faithfully, For Skytech Solutions Director