AdminBudget 2012-13 possibly provides an opportunity to resolve this longstanding problem through the proposed taxation of services.
The indirect taxation of information technology software has been a longstanding matter of debate and dispute. In particular, the challenge of double taxation has been endemic. This article highlights the recent developments in this regard which could equally pose challenges as also present opportunities to mitigate the impact of the tax.
In order to better understand these developments, it is worthwhile to briefly recapitulate the manner in which such information technology software is presently taxed. On the fundamental issue of the proper classification of such software as either ‘goods’ or ‘services’, the Hon’ble Supreme Court, in its landmark decision in Tata Consultancy Services vs state of Andhra Pradesh [(2004) 178 ELT 22 (SC)], had observed that ‘goods’ could be a tangible property or an intangible one. For anything to become ‘goods’, it had to posses the following attributes (a) it should have utility; (b) it should be capable of being bought and sold; and (c) it should be capable of being transmitted, transferred, delivered, stored and possessed. Therefore, if the software, whether or not customised, was capable of abstraction, consumption, use, transmission, transfer or delivery, it would be treated as goods. Once the software is classified as goods, it is liable to the goods taxes of customs duty, excise duty and the VAT.
Under the federal customs and excise law, information technology software and the related paper licence are typically exempt from customs and excise duties, other than packaged/canned soaftware in shrink wrapped packages, which are charged to the countervailing duty/excise duty, as the case may be. Such software is also chargeable to the state VAT. However, VAT is also levied on the licensing of IT software, as “transfer of right to use goods
