VAT appliable for Software services? | VAT and service tax on Software services

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The recent judgement of suprement court by treating software either branded or unbranded as Goods has created the issue of going back to the definition of software services taxable under VAT.
VAT is applicable on software, as that the Honourable Supreme Court directed that the software of branded and unbranded can be treated as Sale as it can be abstracted, transmitted, transferred, delivered, stored, possessed, consumed in the case of TATA Consultancy Services Vs. State of Andhra Pradesh (39) PSTJ 205 (SC).
In these matters the Andhra Pradesh High Court concluded that software is of two categories – (i) software which is specialised and exclusively custom-made to cater to the needs of individual clients, and (ii) software which is standardised and marketed for the use of certain classes of clients, like the Oracle, Lotus, Master Key, N-Export, Ex.
Unigraphics, etc. and held that for the purpose of the Andhra Pradesh General Sales Tax Act (hereinafter referred to as the Act) it is not necessary to consider whether the definition of goods in Section 2(h) of the Act has to be read down so as to exclude software from it. The High Court took the view that the first category may not constitute goods for the purpose of the Act, while the second category are goods and held that they are leviable to tax.

As per the latest circular issued on March 17, 2011 covering the levy of indirect taxes on packaged software.

Accordingly, all packaged/ canned software imported in shrink wrapped packages, will attract Excise duty/CVD on such retail sale price declared being the combined value of the software and the licenses (right to use). Such software will, however, be exempt from payment of service tax under the category ITSS (as provided in Notification No. 53/2010-ST dated 21st December 2010). On the other hand, such packaged/ canned software, on which affixation of retail sale price is not required under the relevant provisions for the packaged commodities, and the assessment is based therefore, on the value determined under section 4 of the central excise act, 1944, the excise duty/ CVD will be charged only on the value, excluding the value representing consideration for transfer of right to use such packaged/ canned software. However, service tax under the category ITSS would be levied on such portion subsequently.

 
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