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Maintenance,
service or repair of computer software to attract service tax
The
Department of Revenue of the Ministry of Finance has issued a
draft circular (Circular No. 354/132/2005-TRU) stating that the
maintenance, service or repair of all computer software is now
subject to levy of service tax under the term 'taxable service'.
There was a question as to whether the maintenance and repair
of computer software, which is not tangible good, would fall within
the ambit of levy of service tax under this category.
The
circular clarifies this, relying on the decision of the Supreme
Court in Tata Consultancy Services v. State of Andhra Pradesh
(Civil Appeal No. 2582 of 1998) wherein the Supreme Court has
ruled that the sale of computer software falls within the scope
of sale of goods. It states that the Supreme Court has categorically
ruled that branded software (canned software) sold off the shelf,
falls within the definition of goods.
The
circular further clarifies that in the case of unbranded / customized
software, the supplier develops the program and generally transfers
it onto a media and thereafter, the program is delivered to the
customer's premises and loaded onto his system. Thus, in this
case too, the software is incorporated in a media for use and
hence, such computer software on a media is goods.
Thus,
in either case, the taxable service of maintenance, servicing
or repair of computer software is in relation to computer software
on a media, which is covered under the definition of goods and
therefore subject to levy of service tax.
It
is interesting to note that the decision of the Supreme Court,
on which this circular is based, is only dealing with computer
software which is transferred on a medium, not software which
is downloaded on-line. The circular seems to have missed dealing
with the maintenance and repair of such software.
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You
can direct your queries or comments to the authors
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Source:
Economic Times - August 20, 2005
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