License To Use Software Is “Deemed Sale”; Service Tax Not Leviable On Ground That Updates Are Provided: Supreme Court In QuickHeal’s Case

License To Use Software Is “Deemed Sale”; Service Tax Not Leviable On Ground That Updates Are Provided: Supreme Court In QuickHeal’s Case

Case: Commissioner of Service Tax New Delhi versus Quick Heal Technologies Ltd

Coram: Justices Abhay S Oka and JB Pardiwala

Case No.: CIVIL APPEAL NO. 5167 OF 2022

Court Observation: “Once a lumpsum has been charged for the sale of CD (as in the case on hand) and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided. We are of the view that the artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is “goods”, then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to “deemed sale” which would not attract service tax”

“The agreement provides that the licensee shall have right to use software subject to terms and the conditions mentioned in the agreement. The licensee is entitled to use the software/RDM services from the date of license activation until the expiry date of the license. The licensee is also entitled for the updates and technical support. The conditions set out in the agreement do not interfere with the free enjoyment of the software by the licensee. Merely because Quick Heal ― ‖ retains title and ownership of the software does not mean that it interferes with the right of the licensee to use the software. Thus, viewed from any angle, the transaction in the present Appeal results in the right to use the software and would amount to “deemed sale”It is, therefore, not possible to accept the contention of the learned Authorized Representative of the Department that the transaction would not be covered under sub­clause (d) of article 366(29A) of the Constitution”

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