2023-VIL-954-CESTAT-BLR-ST
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SERVICE TAX CESTAT Cases

Service Tax - Classification of customized software - Excisable goods or a service - Appellants are engaged in the manufacture of “Distributed Control Systems” (DCS) comprising of both hardware and software - appellants availed exemption under Notification No. 6/2006-CE dt. 01/03/2006 under the category of Customized Software by treating the customized software as goods - After introduction of service tax on ‘Information Technology Software Services (ITSS) w.e.f. 16/05/2008, Department of the view that imported software, customized and supplied with DCS is a ‘service’ and accordingly leviable to service tax – Confirmation of demand along with interest and penalties - Whether the imported software, customized and cleared along with DCS, classifying the same under Chapter sub-heading 85238090 of CETA, 1985 continue to be an ‘excisable goods’ or the customised software supplied on the CD is a ‘service’ and leviable to service tax w.e.f. 16/05/2008 under the taxable category of ITSS – HELD – Under the ‘scope of work’ the appellants are required to deliver at the site of the customer, the entire DCS system which includes both hardware and software and consumables - even after introduction of the service tax on the ITSS more or less on similar line of definition of ‘Information Technology software’ already present under supplementary note of Chapter 85 of CETA, 1985 and the classification of the said software under Chapter Heading 8523 of CETA, 1985 continued in the CETA, 1985 without any amendment or alteration to the same - what is necessary in a given case is to examine the true nature of transaction between the parties to the contract to ascertain whether the transaction is a sale or service – ld. Commissioner has misdirected in understanding the scope of the applicability of excise duty on manufacture of ‘Information Technology Software’ and levy of service tax on ‘Information Technology software service’ introduced w.e.f 16.5.2008 and applying the same to the facts of the present case - No doubt excise duty or service tax is leviable on the Information Technology software if sold/supplied after 16.5.2008 as an excisable goods or as a service, as the case may be, but the said levies cannot be imposed simultaneously on the same transaction - In a given case it needs to be examined whether excise duty is attracted or the activity is a pure service – in the present case, the Purchase Orders reveal that the transaction between the appellant and their customers are not for supply of software as that of a ‘service’, but it is sale of the customized software on a CD as part of the DCS; accordingly, the same should be considered as ‘excisable goods’ and not as ‘service’ under ITSS - the presence of an element of pure service as alleged by the Revenue is not the intention of the parties to the transaction - the sale of customized software by the appellant is ‘excisable goods’ and classifiable under Chapter subheading 85238090, hence leviable to excise duty, and subject to the exemption notification No. 6/2006-CE dt.1.3.2006 and 12/2012-CE dt. 17.03.2012, as the case may be, on fulfilment of laid down conditions as claimed by the appellant - the impugned orders are set aside and assessee appeals are allowed
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