08 June 2010
What is the definition of packaged or canned software under service tax Act i.e. Finance Act 1994? Vide notification 02/2010 - ST dated 27-02-2010 "packaged or canned software, intended for single use" and packed accordingly is exempted from service tax. Does it cover softrware supplied by digital delivery i.e. software is electronically transmitted?
08 June 2010
Packaged s/w is physical form CD etc. This would be liable for central excise if manufactured in India or cusotms when imported. That is the reason why the same is excluded as a service. As of now downloading of s/w could fall under provding the right to use IT s/w for commercial exploitation and liable for ST. The same transaction is also liable for VAT under the laws of the state. It has also been held to be valid by SC in TCS case. In my view the TCS case is valid and the levy of Servic etax is invalid. However this would have to be decided by the courts.
09 June 2010
Thank you Mr Hiregange for a prompt explanation. To add to my query further, I wish to know if I can take benefit of notifications 02/2010 -ST dtd 27/02/2010 & 17/2010-ST dtd 27/02/2010 which exempts taxable service under item (v) of clause (zzzze) of ss 105 of sec 65 subject to conditions mentioned in respective notifications. Also refer to Department's clarification on Information Technology Software Service (Ministry's Circular/Letter D.O.F. No 334/1/2008-TRU dated 29-02-2008 Quote " Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically shall be covered within the scope of the proposed service. Unquote. which indicates, as I interprete that softwares delivered digitally i.e electronically, should also be eligible for exemption for the sake of equity and as mentioned in above quote to be tax neutral. Can I have your thoughts on the same
09 August 2024
**Understanding Packaged or Canned Software Exemption Under Service Tax**
### **Definitions and Exemptions**
1. **Packaged or Canned Software:** - **Definition:** Under the Finance Act, 1994, "packaged or canned software" refers to software that is pre-written and intended for use by a single customer, and typically comes in a physical form like CDs or DVDs, or is delivered electronically but is pre-packaged for single-use. - **Exemption (Notification 02/2010-ST):** Notification No. 02/2010-ST dated 27-02-2010 provides an exemption to "packaged or canned software, intended for single use" from service tax. The exemption applies to software that is packed accordingly for single-use.
2. **Digital Delivery and Electronic Transmission:** - **Clarification (Circular No. D.O.F. No 334/1/2008-TRU dated 29-02-2008):** The Department of Revenue has clarified that software supplied electronically, such as through digital delivery, falls within the scope of the service tax as Information Technology Software Service. However, the exemption status of electronically delivered software is subject to the specific conditions outlined in the relevant notifications.
### **Application of Exemptions:**
1. **Notification 02/2010-ST:** - **Applicability:** This notification provides exemption for "packaged or canned software" meant for single use. If the software is sold as a physical product or electronically delivered but still qualifies as "packaged or canned" for single use, it may be eligible for exemption. - **Condition:** The key condition is that the software must be intended for single use and should be packed accordingly.
2. **Notification 17/2010-ST:** - **Applicability:** This notification is another important notification to consider, often related to various types of services. You will need to refer specifically to item (v) of clause (zzzze) of section 65 to understand if it applies to your case. The primary focus is whether the software, irrespective of delivery method, qualifies under the specified conditions for exemption.
3. **Digital Delivery:** - **Tax Neutrality:** The circular from the Ministry indicates that taxation should be neutral irrespective of the form of delivery. Therefore, software delivered electronically should not be unfairly taxed compared to physically delivered software.
### **Steps to Take:**
1. **Verify Compliance:** Ensure that the software qualifies as "packaged or canned" and is intended for single use. Check if it meets the conditions specified in Notification 02/2010-ST. 2. **Consult the Circular:** Review the circular and other relevant documents to ensure that the digital delivery method of software does not affect its eligibility for exemption. 3. **Document Evidence:** Maintain proper documentation to support that the software is indeed "packaged or canned" and meets the criteria for exemption. 4. **Seek Professional Advice:** Given the complexity, consider consulting with a tax advisor or legal expert who specializes in service tax to ensure compliance and proper application of the exemptions.
### **Conclusion:**
The software delivered electronically can be eligible for exemption if it qualifies as "packaged or canned software" and meets the conditions specified in the notifications. The circular suggests a tax-neutral approach, which supports the view that digital delivery should not affect the eligibility for exemption. However, you should ensure compliance with the exact conditions stated in the notifications and seek professional advice for detailed guidance.
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