Software downloads

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VINITHA RAJESH (Querist)
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10 January 2013 A company is doing the business of mobile game development. This game is uploaded through an agent. The end customer downloads the game from the agents site. An agreement is executed between the company and the agent for the transactions. The downloads are happening mainly outside India. Net Income (after taking their commission) is transferred by the agent in INR to the company. The agent gives the details of the downloads country wise every month online.

Advice whether this transaction will come under Service tax. If so, will service tax liability be exempted as 'Export of Service'.

Kaushik Vinod

Kaushik Vinod (Expert)
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11 January 2013 Dear Vinitha,

In my view the transaction is covered in Rule 3 of Place of Provision Rules,2012 and place of Provision of Service is outside the taxable territory hence service tax not attracted in India. The same view taken by the CBEC in their Guidance Note dated 20-06-2012.

From 01-07-2012 Rule 6A has been inserted the receipt of consideration in foreign currency is required only for availing the export incentive.

Thanks

VINITHA RAJESH

VINITHA RAJESH (Querist)
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15 January 2013 Thanks.

Is it required to disclose these income in Service tax returns?

There are opinions that the transactions fall under VAT and is to be disclosed as export sales. Please advice.

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Kaushik Vinod

Kaushik Vinod (Expert)
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16 January 2013 Dear Vinitha,

From 01-07-2012 export means as defined in Rule 6A of Service tax Rules,1994.
If your Service satisfied the conditions of Rule 6A then show in the export column in ST-3.
Rule 6A is given below:-
6A. (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,—
(a) the provider of service is located in the taxable territory,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act.
(2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.]

I do not agree with those opinions unless the game is sold in CD or disk or other media.
See the Supreme Court judgment in case of Tata Consultancy Services v. State of Andhra Pradesh [2002 (178) ELT 22 (SC) refers].

Thanks

VINITHA RAJESH

VINITHA RAJESH (Querist)
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16 January 2013 As per Rule 6A point 1(e), money should be recieved in convertible foriegn exchange. In this case, the money is received by the agent in foriegn currency from the end user but the agent transfers in Indian currency to the company. Will export of service be satisfied in this regard.

The software is transferred to the customer through internet in downloadable form. But the copyright of the software will remain with the company. There will not be any relation or after sales support with the customer. Can we consider this as intangible goods.