Court :
AAR, Tamil Nadu
Brief :
The AAR, Tamil Nadu in the matter of Ola Electric Technologies Pvt. Ltd. [Order No. 31/AAR/2022 dated July 29, 2022]has held that the transfer of rights to perform integration testing, installation, and marketing of software from an e-vehicle manufacturing unit to a software development centre on behalf of end-users is subject to Goods and Services Tax("GST") being a supply between two distinct persons.Further held that, where the supply only involves the transfer of rights, it is considered as a supply of service and not that of goods.
Citation :
Order No. 31/AAR/2022 dated July 29, 2022
The AAR, Tamil Nadu in the matter of Ola Electric Technologies Pvt. Ltd. [Order No. 31/AAR/2022 dated July 29, 2022] has held that the transfer of rights to perform integration testing, installation, and marketing of software from an e-vehicle manufacturing unit to a software development centre on behalf of end-users is subject to Goods and Services Tax("GST") being a supply between two distinct persons.Further held that, where the supply only involves the transfer of rights, it is considered as a supply of service and not that of goods.
Ola Electric Technologies Pvt. Ltd. ("the Applicant") was setting up an electric two-wheelers manufacturing unit in Tamil Nadu which is to be sold through various distribution centres across the country, whereas the head office and additional software development centre was set-up in Bengaluru, Karnataka ("the Head Office"). Tamil Nadu Centrewill give the right to theHead Office to integrate, test, market, and install software for performance upgrades on vehicles manufactured by Tamil Nadu Centre. The software was developed by the Head Office, and is owned by them. However, the software will not have any value in the market until Tamil Nadu Centre agrees to integrate it into their manufactured vehicles and allows the Head Officeto sell, upload, and maintain the software on these vehicles. The Tamil Nadu Centre was to charge a recurring consideration from the Head Officefor the said transfer of right and the Head Officewas to sell the software directly to the end user as per their requirement.
The Applicant has contended that the Tamil Nadu and theHead Office are both registrations of the same legal entity, where Tamil Nadu Centre is transferring the right to integrate, test, and market a software to the Head Officeso they can sell it to the end user. The Tamil Nadu Centre is charging the Head Office for this service in order to properly allocate profits in their financial records, as each Centre maintains its own profitability. It has further contended that the transfer of rights for integration testing, installation, and marketing of the software will not be considered a 'service' because there cannot be a service between different centres of the same legal entity. Therefore, this transaction does not qualify as a supply and should not be subject to GST.
The AAR, Karnataka in Order No. 31/AAR/2022 of 2022 has held as under: