2024-VIL-387-CESTAT-BLR-ST
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SERVICE TAX CESTAT Cases

Service Tax – Section 65(zzzze) of Finance Act, 1994 – Classification of service – Demand of tax – Appellant is engaged in manufacture of Thin Client, which is a computer with nominal storage capacity – Appellant had entered into Customer License Agreement for embedded systems with Microsoft Corporation (MS), which grants them limited world-wide license – In pursuance to license granted by MS, Appellant builds MS images using software tools from toolkit purchased locally from dealer of MS – In terms of agreement with MS, Appellant had to procure Certificate of Authenticity (COA) and affix same on Thin Client manufactured by them – Appellant purchased COAs on High Sea Sale (HSS) basis and affixed same to manufactured Thin Clients – Commissioner confirmed demand of service tax under category of Information Technology Software Service as defined under Section 65(zzzze) of the Act – Whether purchase of COA on high sea sale basis and later affixed on Thin Clients already installed with MS software embedded system procured from local Microsoft authorized distributors, is a ‘sale’ or ‘service’ classifiable under taxable category of Information Technology Software Service – HELD – Crux of dispute in present case centers around fact either purchase/import of COAs/stickers/labels will result in sale or service – Appellant are engaged in manufacture of Thin Clients, which required a software to make it functional/operational – To acquire necessary software to be embedded with system, Appellant entered into an agreement with MS, whereby they were authorized to procure off-shelf MS OS software, which also provided them the right to replicate into individual hard discs installed later into Thin Clients – Software would be operational or functional only with affixation of COAs – Appellant procured/purchased COAs/stickers/labels on HSS basis from Priya Limited – Imported stickers/labels are considered as ‘goods’ more or less in line with Circular No.15/2011 issued by Board – Merely by affixing stickers/labels providing authenticity to software loaded to each of Thin Clients cannot be construed as a ‘service’ received by Appellant under category of ITSS – Whole transaction/activity including installation of software and later affixing stickers/labels to Thin Clients procured/purchased on HSS basis are in nature of ‘sale’ and not ‘service’ – Consequently, demand of service tax cannot be sustained – Appeal allowed
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