COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED

COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5167  OF 2022

(DIARY NO. 24399 OF 2020)

COMMISSIONER OF SERVICE TAX DELHI   …APPELLANT(S)

VERSUS

QUICK HEAL TECHNOLOGIES LIMITED      …RESPONDENT(S)

WITH

CIVIL APPEAL NOS.  5168­5169  OF 2022

(ARISING OUT OF S.L.P. (CIVIL) NOS. 6715­6716 OF 2022)

J U D G M E N T

J.B. PARDIWALA, J. :

1. Since the issues raised in both the captioned cases are the

same, those were taken up for hearing analogously and are

being disposed of by this common judgment.

Civil Appeal (Diary No. 24399 of 2020)

2. Delay condoned.

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3. This appeal under Section 35L(b) of the Central Excise Act,

1944   (for   short,   ‘the   Act   1944’),   as   made   applicable   to   the

service tax by Section 83 of Chapter V of the Finance Act, 1994

(for short, ‘the Act 1994’), is at the instance of the revenue and

is directed against the order No. 50022/2020 dated 09.01.2020

passed   by   the   Customs,   Excise   and   Service   Tax   Appellate

Tribunal, New Delhi (for short, ‘the Tribunal’) in the Service Tax

Appeal No. 51175 of 2016 by which the Tribunal allowed the

appeal filed by the respondent herein (assessee) thereby set

aside the Order in Original dated 28.01.2016 passed by the

Additional Director General (Adjudication) DGCEI, Delhi.

FACTUAL MATRIX

4.  For the sake of convenience, the appellant herein shall be

referred to as the “revenue” and the respondent herein shall be

referred to as the “assessee”.

5. The   assessee   is   registered   with   the   Service   Tax

Commissioner, Pune­III for providing taxable services, inter alia,

under   the   category   of   “Information   Technology   Software

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Service”. The assessee is engaged in the development of Quick

Heal brand Antivirus Software which is supplied along with the

license code/product code either online or on the replicated

CDs/DVDs to the end­customers in India.

6.  It appears from the materials on record that it came to the

notice of the Directorate General of Central Excise Intelligence

(Headquarters) that the assessee engaged in the development of

Quick   Heal   brand   Antivirus   Software   had   not   been   paying

service tax prior to 01.07.2012 on the services covered under

the   category   of   “Information   Technology   Software   Service”

falling under Item No. (vi) of clause (zzzze) of sub­section (105)

of Section 65 of the Act 1994 w.e.f  01.07.2012 on the services

covered under the category of “Information Technology Software

Service” under Section 66E(d) of the Act 1994 for providing

Quick Heal brand Antivirus Software license key/code supplied

along with the CD/DVD replicated with the Quick Heal brand

Antivirus Software through the dealers/distributors to the endcustomers in India.

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7. In the aforesaid context, an inquiry was initiated against

the assessee and at the end of the same, the revenue reached to

the conclusion that the assessee is liable to pay service tax on

the transactions with the end­customers to supply the license

codes/keys of Quick Heal brand Antivirus Software in the retail

packs. The revenue reached to the conclusion that the assessee

had failed to pay the service tax on the consideration received

for the supply of the license codes/keys of Antivirus Software to

the end­customers in retail packs during the period between

01.03.2011 and 31.03.2014.  

8. In such circumstances referred to above, a show cause

notice dated 02.02.2015 came to be issued to the assessee by

the   Additional   Director   General,   DGCEI   (Hqrs.),   New   Delhi

proposing a demand/recovery of service tax amounting to Rs.

62,73,05,953.36p. (Rupees Sixty Two Crore Seventy Three Lakh

Five Thousand Nine Hundred Three and paise Thirty Six Only)

on the taxable value of Rs. 5,30,94,66,783/­ (Rupees Five Arab

Thirty   Crore   Ninety   Four   Lakh   Sixty   Six   Thousand   Seven

Hundred Eighty Three Only) for supplying Quick Heal Antivirus

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Software   replicated   CDs/DVDs   in   the   retail   packs   (i.e.

Information   Technology   Software   Service)   through   its

dealers/distributors   to   the   end­customers   in   India   for   the

period between 01.03.2011 and 31.03.2014 under the proviso

to Section 73(1) of the Act 1994 by invoking the extended period

of limitation with interest and penalty. 

9. The show cause notice referred to above was adjudicated

by the Additional Director General (Adjudication), DGCEI, Delhi,

who, in turn, confirmed the demand of service tax amount to

Rs. 56,07,05,595/­ (Rupees Fifty Six Crore Seven Lakh Five

Thousand Five Hundred Ninety Five Only) alleged to have been

not   paid   by   the   assessee   on   the   service   of   Information

Technology Software Service vide its Order in Original dated

28.01.2016. 

10. The assessee, being aggrieved with the order passed by the

Additional   Director   General   (Adjudication),   DGCEI,   preferred

the Service Tax Appeal No. 51175 of 2016 before the Tribunal.

11.  The   Tribunal   allowed   the   appeal   filed   by   the   assessee

herein essentially on the following three grounds:­

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i. The antivirus software did not have an element

of interactivity.

ii. As per the decision of the Supreme Court in the

case   of  Tata   Consultancy   Services   v.   State   of

Andhra Pradesh, (2005) 1 SCC 308, (“TCS”), the prepackaged/canned software would be treated as goods.

Once the software is put on a medium like a CD and

then sold, such software would be treated as goods.

iii. The Central Board of Excise & Customs (CBEC)

issued   guidelines   when   the   negative   regime   was

issued on 1.7.2012. The guidelines clarified that the

pre­packaged/canned   software   would   not   be   goods

even if there was a licence.

12.  The revenue, being dissatisfied with the order passed by

the Tribunal, has come up before this Court with the present

appeal under Section 35L(b) of the Act 1944.

13. The revenue has in its memorandum of appeal formulated

the following questions of law for consideration of this Court:­

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“(i) Whether the Tribunal is right in holding that the

transaction in the present case results in the right to

use the software and would amount deemed sale?

(ii) Whether the Antivirus Software license key/code

supplied   by   the   respondent   along   with   CD/DVD

replicated with Quick Heal Brand Antivirus Software

through dealers/distributors to the End­Customers is

liable to Service Tax?

(iii) Whether the service provided by the respondent is

classifiable   under   Information   Technology   Service

liable to service tax under Section 65(105)(zzzze) of the

Finance   Act,   1994   prior   to   01.07.2012   and   under

Section   66E(f)   of   the   Finance   Act,   1994   w.e.f.

01.07.2012?

(iv) Whether the transfer of goods by way of hiring,

leasing, licensing or any such manner without transfer

of right of use such goods, is a declared service under

clause (1) of Section 66E of the Finance Act, 1994?”

SUBMISSIONS ON BEHALF OF THE REVENUE :

14. The learned counsel appearing for the revenue vehemently

submitted   that   the   Tribunal   committed   a   serious   error   in

passing the impugned order by relying upon the decision of this

Court   in  TATA   Consultancy   Services  (supra).   He   would

submit that the question before this Court in the case of the

TATA Consultancy  Services (supra) was whether the canned

software sold by the appellants therein could be termed to be

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“goods” under the Andhra Pradesh General Sales Tax Act, 1957

and hence, assessable to the sales tax? He submitted that the

principal contention of the appellants before this Court in the

case of the TATA Consultancy Services (supra) was that the

canned software was “intangible property” and hence would not

come within the definition of the “goods”.  He would submit that

the issue was clearly not whether the canned software was

“goods” or “service”. He laid much stress on the fact that no

argument   was   canvassed   on   the   canned   software   being   a

service.   Since   the   question   did   not   pertain   to   the   canned

software   being   a   “service”,   this   Court   did   not   make   any

comment on whether the canned software could be a “service”.

He   would   submit   that   in   such   circumstances,   the   Tribunal

committed an error in relying on the ratio of the decision of this

Court in the case of TATA Consultancy Services (supra). 

15. The learned counsel would further submit that the entire

transaction of selling or trading of the software can be divided

into two stages:­

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(a) Up to the replication of the Master CD by the

replicators   under   the   terms   of   agreement.   This   is

covered by this Court’s judgment in the case of TATA

Consultancy Services (supra). There rises no dispute

of paying duty at this stage, since, the recording of the

software on their CDs and making them marketable

makes it ‘Goods’ which is chargeable to the Central

Excise Duty;

(b) The supply to the end­users under a separate

End User Licensing Agreement, consists of 2 parts:

         (i)  Supply of Antivirus software in the CD. 

  (ii) Providing electronic updates to the software 

          originally provided.

16.   He   would   submit   that   the   present   dispute   is   one

relating to part (b) as above of the transaction.   

17.  Referring   to   the   decision   of   this   Court   in   the   case   of

Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC

1, (for short, ‘BSNL’), he would submit that the same deals with

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the “composite transaction” of giving telephone connection that

involves service and sale.  It was held therein by the majority

that it is possible for the State to tax the sale element provided

there is a discernible sale and the “dominant intention” test is

satisfied.  To put it in other words, the learned counsel would

submit that the test for a composite contract other than those

mentioned in the Article 366(29A) of the Constitution continues

to be “did the parties have in mind or intend separate rights

arising   out   of   the   sale   of   goods?”.   If   there   was   no   such

intention,   there   is   no   sale   even   if   the   contract   could   be

disintegrated. According to the learned counsel, the test for

deciding whether a contract falls into one category or the other

is as to what is 'the substance of the contract’. He pointed out

that in the case of BSNL (supra) it was held that what amounts

to being “goods” in the sale transaction remains primarily a

matter of contract and intentions.

18. He placed strong reliance on the decision of the Madras

High   Court   in   the  case   of  M/s   Infotech   Software   Dealers

Association  v.  Union  of   India, 2010 (20) S.T.R. 289 (Mad.),

10

wherein   the   High   Court   took   the   view   that   the   supply   of

packaged antivirus software to the end user by charging license

fee as per the end user license agreement amounts service and

not sale.  The Madras High Court held that for the purpose of

imposition of tax, the nature of transaction should be looked

into.

19. In   such   circumstances   referred   to   above,   the   learned

counsel appearing for the revenue, prays that there being merit

in   his   appeal,   the   same   may   be   allowed   by   answering   the

proposed questions of law in favour of the revenue and against

the assessee.

SUBMISSIONS ON BEHALF OF THE ASSESSEE :

20. On the other hand, Mr. Arvind P. Datar, the learned senior

counsel appearing for the assessee, vehemently opposed this

appeal by submitting that no error, not to speak of any error of

law, could be said to have been committed by the Tribunal in

passing the impugned order.  He would submit that in para 29

of   the   impugned   order   the   Tribunal   rightly   rejected   the

contention   of   the   revenue   that   the   antivirus   software   was

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interactive. Mr. Datar would submit that the Tribunal rightly

held that a programme could be said to be interactive only

when it involves the user to have  exchange of information or

when there is action and communication between the user and

the software. The learned senior counsel gave an example by

pointing that the MS Word, Excel, etc. are interactive softwares

which can be run only after the receipt of the instructions from

the user.   On the other hand, there is no interactivity in an

antivirus   software   as   there   is   no   requirement   of   giving   any

command for detecting and removing the virus. In other words,

no manual input is required to operate an antivirus software as

it acts automatically upon detecting any virus. He would submit

that the antivirus software which is installed in a computer

system cannot be treated as an interactive software.

21. The   learned   senior   counsel   thereafter   took   this   Court

through the decision rendered by this Court in the case of

TATA   Consultancy   Services  (supra).   The   learned   senior

counsel offered the following comments on the impact of the

decision in the case of TATA Consultancy Services (supra) :­

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“4.1 The   question   as   to   whether   software   can   be

treated as goods was referred to a bench of five judges

in the aforesaid TCS case.

4.2 The   State   of   Andhra   Pradesh   had   levied

VAT/sales tax on software CDs, which were packed

and   sold   to   customers.   This   Hon’ble   Court,   after

extensive   consideration   of   India   and   U.S.   decisions,

held   that   even   though   the   copyright   in   a   software

program   may   remain   with   the   originator   of   the

program, the moment the software is loaded onto a CD

and   copies   are   made   and   marketed,   they   become

goods, “which are susceptible to sales tax”.

4.3 There is no difference between sale of a software

program on a CD/floppy disc or the sale of music or

film CD. It categorically held that the software and the

medium cannot be split up in a sale of a computer

software,   which   is   a   sale   of   goods.   Apart   from   the

judgment of Justice Variava, Justice S.B. Sinha gave a

concurring opinion giving additional reasons as to why

software, which is put on a medium and sold, is in the

nature of a commodity and has to be treated as goods.

The   learned   judge   also   held   that   the   definition   of

canned software would be exigible to sales tax.

4.4 In the present case, the impugned CESTAT order

has   reproduced   several   paragraphs   from   the   TCS

ruling and concluded in paragraph 35/Page 54, Vol. I

that once software is put in a media and marketed, it

would become goods.

4.5 The negative regime of service tax came into force

on July 1, 2012. Barring specific exemptions, almost all

contracts were to  be treated  as services  when they

were   supplied   for   consideration.   Service   tax   was

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sought   to   be   levied   on   Information   and   Technology

Service, under section 65(53a) which reads as follows:

(53a) “information   technology   software”   means

any   representation   of   instructions,   data,   sound   or

image,   including   source   code   and   object   code,

recorded in a machine readable form, and capable of

being manipulated or providing interactivity to a user,

by   means   of   a   computer   or   an   automatic   data

processing machine or any other device or equipment;

4.6 Similarly,   the   definition   of   taxable   services   is

contained   in   section   65(105)   (zzzze)   which   are   also

reproduced earlier.

4.7 While the above definitions were prevailing prior

to 01.07.2012, section 66E(d) – provided for declared

service under the new negative regime and read as

follows:

“development, design, programming, customization,

adaptation,   upgradation,   enhancement,

implementation of information technology software”

4.8 Further,   section   65B   (28)   defined   “information

technology software” which was almost identical to the

earlier definition under section 65 (63a).”

22.  The   learned   senior   counsel   thereafter   made   his

submissions on the CBEC Circular/Education Guide. Following

comments have been offered as regards the said Circular in the

written note furnished to this Court:­

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“5.1 After   the   negative   regime   came   into   force   on

1.7.2012, reproduced above, the CBEC Education Guide

issued the following guidelines:

(i)Pre­packaged or canned software would not be covered

by   the   entry   relating   to   information   technology

software. This is because such software as “goods” as

held   by   the   Supreme   Court   in   the   TCS   case.   The

guidelines   specifically   reproduced   the   text   of   the

Supreme Court ruling.

(ii)It   then   concluded   that   if   pre­packaged   or   canned

software, were sold, then the transaction would be in

the nature of a sale of goods and no service tax would

be levied.”

23. The learned senior counsel thereafter submitted as regards

the excise duty/tariff   entry and     exemption notifications as

under :­

“6.1 It is pertinent to note that S. No. 84A of the third

schedule to the Central Excise Act, 1944, deals with

entry 8523 80 20 corresponding to “Packaged software

or   canned   software”.   The   Explanation   provided

thereunder   defined   “packaged   software   or   canned

software” as a software which is intended for sale or

capable of being sold off­the­shelf.

6.2 Moreover, Notification No:14/2011 CE dated 01­

03­2011 adopted this definition and exempted excise

duty   on   such   “packaged   software   or   canned

software”.”

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24. He vehemently submitted that the transaction cannot be

bifurcated into two components as suggested by the revenue i.e.

(i) sale of CD, and (ii) supply of updates. In this regard, he

submitted as under :­

“7.1 During the arguments, the Department submitted

that apart from the sale of CD, the updates which were

to   be   provided   under   the   contract   would   amount   to

service. It is submitted that this is incorrect because the

pre­packaged antivirus software which is sold in the

box has a condition of sale that updates for the period

of license would be also provided to the person who

has   purchased   the   goods   without   any   further

consideration. These updates are part and parcel of the

sale of software itself and cannot be divorced from the

transaction and treated separately as a service. 

7.2 Indeed,   every   pre­packaged   software   that   was

sold in a box, where there it is Tally or Word or Excel,

would also include supply of updates for the period of

licence.

7.3 Further, section 65B (44) defined service to mean

any activity carried out by a person for a consideration

and includes a declared service. In the present case, no

separate   consideration   is   charged   for   the   updates

which are part and parcel of the sale of goods itself.

Consequently,   even   if   the   updates   are   treated   as

declared   services   under   section   66E(d),   no

consideration is charged for such service separately.

7.4 In BSNL v. Union of India it was categorically held

that the contract cannot be vivisected or split out. Once

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a lumpsum has been charged for the sale of CD and

sales   tax   has   been   paid   thereon,   the   Department

cannot levy service tax on the entire sale consideration

once   again   on   the   ground   that   updates   are   being

provided.”

25. In the last, the learned senior counsel submitted that the

payment of VAT and service tax are mutually exclusive. He

would submit that :­

“8.1 It is well settled that sales tax and VAT is covered

by   Entry   54   of   List­II   in   the   VII   Schedule   of   the

Constitution. Only State Legislatures can levy VAT on

the sale of goods. On the other hand, service tax is

leviable under the Finance Act, 1994 (as amended) on

the provision of service and such levy is permissible

under Entry 97 of List­I.

8.2 It   is   also   well   settled   that   there   could   be   no

overlapping of taxes as the taxing powers have been

carefully   split   between   Union   and   the   State.

Accordingly, the taxation of goods has been allotted to

the   State   Legislatures   while   taxing   of   service   is

retained by the Centre.

8.3 In Imagic Creative Pvt. Ltd. v. CCT, (2008) 9 STR

337   (SC)   :   (2008)   2   SCC   614,   this   Court   held   that

payment of VAT and service tax are mutually exclusive.

After the TCS judgment, the controversy was put to rest

in intellectual property where software or music or film

which has been put on a medium such as a CD will be

treated as goods and consequently can subject only to

sales tax/VAT.”

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26.  In   such   circumstances   referred   to   above,   the   learned

senior counsel appearing on behalf of the assessee, prays that

there being no merit in the present appeal, the same may be

dismissed. ANALYSIS :

27. Having heard the learned counsel appearing for the parties

and   having  gone  through  the  materials  on   record,  the   only

question   that   falls   for   our   consideration   is,   whether   the

Tribunal committed any error in passing the impugned order?

28. Before we advert to the rival submissions canvassed on

either side, we must look into some of the reasons assigned by

the Tribunal while allowing the appeal preferred by the assessee

against the order of the adjudicating authority. We quote:­

“25. The contention of the Appellant is that the software

developed by it can neither be manipulated nor does it

provide any interactivity to a user and, therefore, does

not satisfy the requirement of “information technology

software”. According to the Appellant, once the computer

system   is   booted,   the   Antivirus   Software   begins   its

activity of detecting the virus and continues to do so till

the   time   the   computer   system   remains   booted.   Thus,

there   is   no   interactivity   or   requirement   of   giving   any

commands to the software to perform the function of

detecting and removing virus from the computer system.

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The   Appellant   further   contends   that   the   software

developed by it is quite distinct from software like ERP,

EXCEL, MS Word, where there is a constant to and from

interaction between the user and the computer system

containing the said software. These softwares perform

their   function only after receipt of input from the user,

which   is   not   the   case   in   the   Antivirus   Software

developed by the Appellant. 

x x x

28.   The   Adjudicating   Authority,   however,   has   not

accepted   the   contention   of   the   Appellant   and   has

observed that the software can issue commands to scan

drives, both internal and external and that it has an

interface with the user to tune­up the personal computer

and that it has also a parallel control feature. These

features, according to the Adjudicating Authority, need a

command by the user to the software and, therefore, it is

interactive. 

29. It is not possible to accept this finding. The Antivirus

Software developed by the Appellant is complete in itself

to   prevent   virus   in   the   computer   system.   Once   the

computer   system   is   booted,   the   Antivirus   Software

begins   the   function   of   detecting   the   virus,   which

continues   till   the   time   the   computer   system   remains

booted. The computer system only displays a message

that viruses existed and that they have been detected

and removed. No interactivity takes place nor there is

any requirement of giving any command to the software

to perform its function of detecting and removing virus

from   the   computer   system.   It   is   also   seen   from   the

meaning assigned to “interactive” that a program should

involve the user in the exchange of information. There

has to be action and communication between the two. A

19

user should communicate with the computer facility and

receive rapid responses, which can be used to prepare

the next inputs. In contract, in other softwares like ERP,

EXCEL, MS Word, there is continues interaction between

the user and the computer system and these softwares

perform only after receipt of input from the user.

30. Such being the position, no service tax was leviable

under section 65(105)(zzzze) of the Act prior to 1 July,

2012.   Even   after   1   July,   2012   the   definition   of

“information technology software” under section 65B(28)

remained the same and so  also  service tax was not

leviable. 

31. The matter can be examined from another angle.

Section 65B (51) defines a “taxable service” to mean any

service on which service tax is leviable under section

66B.  Section   66B   provides  that   there   shall  be   levied

service tax on the value of all services, other than those

services specified in the negative list, provided or agreed

to be provided in the taxable territory by one person to

another   and   collected   in   such   manner   as   may   be

prescribed. Section 65B (44) define “service” to mean

any activity carried out by a person for consideration,

and includes a declared service, but shall not include,

amongst   others,   an   activity   which   constitutes   merely

such transfer, delivery or supply of any goods which is

“deemed  to be  a  sale” within the meaning of clause

(29A) of article 366 of the Constitution.”

29.  The Tribunal thereafter proceeded to consider the decision

of   this   Court   rendered   in   the   case   of  TATA   Consultancy

20

Services (supra). Upon analysis of the ratio of the said decision,

the Tribunal recorded the following findings :­

“35.   It   is   clear   from   the   aforesaid   decision   of   the

Supreme   Court   in   Tata   Consultancy   Services   that

intellectual property, once it is put on the media and

marketed  could  become  “goods”  and  that  a software

may   be   intellectual   property   and   such   intellectual

property contained in a medium is purchased and sold

in various forms including CDs. 

36. Section 65B (44) of the Act also excludes from the

definition   of   “service”   any   activity   which   constitutes

merely such transfer, delivery or supply of any goods

which is deemed to be a sale within the meaning of

clause (29A) of article 366 of the Constitution. As noticed

above, the Supreme Court in Tata Consultancy Services

held that Canned Software supplied in CDs would be

“goods” chargeable to sales tax/VAT and no service tax

can be levied.” 

30.  The Tribunal thereafter, in para 37 of its order, considered

the CBEC Education Guide for service tax containing the official

guidelines   for   new   system   of   levy   of   service   tax.   After   due

consideration of the same, it recorded the following findings in

para 38:­

“38.   A   perusal   of   the   aforesaid   guidelines   would

indicate that after making a reference to the judgment of

Supreme   Court   in   Tata   Consultancy   Services,   it

mentions that a transaction would be in the nature of

sale of goods when a pre­packaged or Canned Software

21

is sold, and no service tax would be leviable. However, a

license to use the software which does not involve the

transfer of “right to use” would neither be a transfer of

title   in   goods   nor   a   deemed   sale   of   goods.   Such   an

activity would fall in the ambit of definition of “service”.

Thus, if a pre­packaged or Canned Software is not sold

but is transferred under a license to use such software,

the   terms   and   conditions   of   the   license   to   use   such

software would have to be seen to arrive at a conclusion

whether   the   license   to   use   the   packaged   software

involves a transfer of “right to use” such software in the

sense the phrase has been used in sub­clause (d) of

article 366(29A) of the Constitution. The guidelines also

provide   that   in   case   a   license   to   use   pre­packaged

software   imposes   restrictions   on   the   usage   of   such

licenses,   which   restriction   interfere   with   the   free

enjoyment of the software, then such a license would

not result in transfer of “right to use” the software within

the   meaning   of   Clause   29(A)   of   article   366   of   the

Constitution. However, every condition imposed would

not make it leviable to service tax. The condition should

be such so as to restrain the right to free enjoyment on

the   same   lines   as   a   person   who   has   otherwise

purchased goods is able to have.”

31. The Tribunal thereafter proceeded to consider the terms of

the agreement to ascertain whether there was transfer of the

“right to use goods”.   The Tribunal in para 44 of its order

recorded the following relevant provisions of the Quick Heal

Internet Security End­User License Agreement:­

“16. BY USING THIS SOFTWARE OR BY ACCEPTING

OUR   SOFTWARE   USAGE   AGREEMENT   POLICY   OR

22

ATTEMPTING TO LOAD THE SOFTWARE IN ANY WAY,

(SUCH   ACTION   WILL   CONSTITUTE   A   SYMBOL   OF

YOUR   CONSENT   AND   SIGNATURE),   YOU

ACKNOWLEDGE AND ADMIT THAT YOU HAVE READ,

UNDERSTOOD AND AGREED TO ALL THE TERMS AND

CONDITIONS   OF   THIS   AGREEMENT,   THIS

AGREEMENT   ONCE   ACCEPTED   BY   "YOU"[   AS   AN

INDIVIDUAL (ASSUMING YOU ARE ABOVE 18 YEARS

AND/OR HAVING LEGAL CAPACITY TO ENTER INTO

AN AGREEMENT), OR THE COMPANY OR ANY LEGAL

ENTITY   THAT   WILL   BE   USING   THE   SOFTWARE

(HEREINAFTER REFERRED TO AS YOU' OR YOUR' FOR

THE   SAKE   OF   BREVITY]   SHALL   BE   A   LEGALLY

ENFORCEABLE   AGREEMENT   BETWEEN   YOU   AND

QUICK   HEAL   TECHNOLOGIES   PRIVATE   LIMITED,

PUNE,   INDIA   (HEREINAFTER   REFERRED   TO   AS

"QUICK HEAL") AND YOU SHALL HAVE THE RIGHTS

TO USE THE SOFTWARE SUBJECT TO THE TERMS

AND CONDITIONS MENTIONED IN THIS AGREEMENT

OR AS AMENDED BY QUICK HEAL FROM TIME TO

TIME. IF YOU DO NOT AGREE TO ALL THE TERMS

AND   CONDITIONS   BELOW,   DO   NOT   USE   THIS

SOFTWARE IN ANY WAY AND PROMPTLY RETURN IT

OR DELETE ALL THE COPIES OF THIS SOFTWARE IN

YOUR POSSESSION. 

In consideration of payment of the License Fee, which

is a part of the price, evidenced by the Receipt. Quick

Heal   grants   the   Licensee,   a   non­exclusive   and   nontransferable right. Quick Heal reserves all rights not

expressly granted, and retains the title and ownership

of the software, including all subsequent copies in any

media. This software and the accompanying written

materials   are   the   property   of   Quick   Heal   and   are

copyrighted.   Copying   of   the   software   or   the   written

material   is   expressly   forbidden.   In   addition   to   this

security software, Quick Heal offers you Quick Heal

23

Remote Device Management Services to manage your

device(s). 

Quick Heal reserves all rights not expressly granted,

and retains the title and ownership of the software,

including   all   subsequent   copies   in   any   media,   This

software and the accompanying written materials are

the property of Quick Heal and are copyrighted. 

1. DEFINITIONS 

    ­­­­­­­­­­­­­­ 

B.   "License   period"   means   the   period   as   more

particularly described in this Agreement. 

    ­­­­­­­­­­­­­­ 

G. “Updates” means collections of any or all among

virus definition files including detections and solutions

for   new   viruses   along   with   the   corrections,

improvements or modifications to the software.

2. DO's & DON'TS

You can: 

A. make copy of the software for backup purpose or for

the purpose of sharing through various means (and such

backup copy must be destroyed when you lose the right

to use the Software or is terminated for any other reason

according to the legislation in force in the country of your

principal   residence   or   in   the   country   where   You   are

using   the   software)   and   replace   lost,   destroyed,   or

becomes unusable.

B. use one copy of the software on a single computer. In

case of multiuser pack, use of the software only on the

said number of systems as mentioned on the packaging.

C. install the software on a network, provided you have

a licensed copy of the software for each computer that

can access the software over that network. 

24

D. avail Quick Heal RDM service to manage your device

(a maximum of 10 devices in one account.) 

You cannot: 

A. emulate, or adapt any portion of the software. 

B. sublicense, rent or lease any portion of the software.

C. try making an attempt to reveal/discover the source

code of the software. 

D.   debug,   decompile,   disassemble,   modify,   translate,

reverse engineer the software. 

E. create derivative works based on the software or any

portion thereof with sole exception of a non­waivable

right granted to You by any applicable legislation. F.

remove   or   alter   any   copyright   notices   or   other

proprietary notices on any copies of the software. 

G. reduce any part of the software to human readable

form. H. use  the  software  in  the  creation  of  data  or

software used for detection, blocking or treating threats

described in the user manual. 

I. use for unlicensed and illegal purpose. 

J.   remove   your   user   account   from   Quick   Heal   RDM

service once registered 

K. retrieve deleted location entries and back up data

from the user account on the Quick Heal RDM service. 

L. attempt to gain unauthorized access to Quick Heal

RDM networks.  

5. LICENSE PERIOD 

A. You are entitled to use this software/ RDM Services

from the date of license activation until the expiry date

of the license. 

B.   You   understand,   agree   and   accept   that   you   are

entitled for the updates and technical support via the

Internet and telephone. Any use of this software/RDM

Services for any other purposes is strictly forbidden and

prohibited and Quick Heal reserves to take any action

against such unauthorized usage. 

25

C. License for use of Quick Heal RDM service to manage

devices shell be valid till your device security software

license is valid. 

D. You agree, understand that any unauthorized usage

of   the   software/   RDM   services   or   breach   of   any/all

terms and conditions stated herein the Agreement shall

result in automatic and immediate termination of this

Agreement   and   the   License   granted   hereunder   and

which may result in criminal and/ Or civil action by

Quick Heal and/ Or its agents against you including but

not limited to right to block the key file/ License key/

product key and without any refund to You and without

any prior intimation/ notice to you in this regard. 

E. If you have acquired the specific language localization

of the software/ RDM service, you will not be able to

activate the software by applying the activation code of

other language localization. 

F. Quick Heal does not guarantee the protection from the

threats more particularly described in the user manual

after the License to use the software/RDM service is

terminated for any reason. 

6. FEATURES OF SOFTWARE

A.   During   the   license   period   of   the   software/RDM

services,   You   have   the   right   to   use   features   of

software/RDM service. 

B. During the license Period of the Software/RDM, You

have the right to receive free updates of the software

and Quick Heal RDM service via Internet as and when

Quick Heal publishes the updated virus­ database and

free version upgrade as and when Quick Heal releases

new version upgrade. You agree, understand and accept

that   You   will   be   required   to   regularly   download   the

updates published by Quick Heal. Any and all updates/

upgrades you receive from Quick Heal shall be governed

by this Agreement, or as amended from time to time by

Quick Heal. 

26

C. You agree, accept and acknowledge: 

I. that You are solely responsible for the configuration of

the   software/   RDM   services   settings   and   the   result,

actions, inactions initiated due to the same and Quick

Heal assumes no liability/ responsibility in any case

and the Clause of Indemnification shall be applicable. 

II. that Quick Heal assumes no liability/responsibility

for any date deletion, including but not limited to any

deletion/   loss   of   personal,   and/or   confidential   date;

and/or   uninstallation   of   third­party   apps;   and/or

change   in   settings;   specifically   authorized   by   You   or

occurs due to the actions, inactions (whether intentional

or   not)   by   You   or   any   third   party   whom   You   have

authorized to use, handle you Device due to features or

software/RDM services. 

III.   that   to   avail/use   certain   features   of   the

software/RDM services, you may be required to incur

some cost and that Quick Heal does not warrant that

the   usage   of   certain   features   of   the   software/RDM

services are free of cost and that Quick Heal shall not

entertain   and   expressly   disclaims,   any   claim   for

reimbursement of any expenses including but not limited

to any direct or incidental expenses arising out of Your

usage of such features of the software/RDM services. 

IV. that you be solely responsible and shall comply all

applicable laws, regulations of India and any foreign

laws   including   without   limitation,   privacy,   obscenity,

confidentiality,   copyright   laws   for   using   any   report,

date,   information   derived   as   a   result   of   using   the

software and Quick Heal RDM services. 

V. that while using the software, Quick Heal suggests

some actions to be initiated by You in your sole benefit,

for example  ‖Quick Heal software may suggest You to

uninstall infected applications‖, however such actions

are   suggestive   and   Quick   Heal   takes   no

responsibility/liability   if   you   perform   such   suggestive

actions   or   not   and   Quick   Heal   assumes   no

27

responsibility/   liability  for  any  liability   arising   out   of

such actions/inactions. 

9. QUICK HEAL STATUS UPDATE 

Upon every update of licensed copy, Quick Heal Update

module will send current product status information to

Quick Heal Internet Centre. The information that will be

sent   to   the   Internet   Centre   includes   the   Quick   Heal

protection health status like, which monitoring service is

in what state in the system. The information collected

does   not   contain   any   files   or   personal   date.   The

information   will   be   used   to   provide   quick   and   better

technical   support   for   legitimate   customers.   All   the

registered user/subscribers will get the updates free of

cost from the date of license activation until the expiry

date of the license. 

13. Intellectual Property 

The software, source code, activation code, license keys,

documentation,   systems,   ideas,   information,   content,

design, and other matters related to the software, Quick

Heal RDM services, trademarks are the sole proprietary

and intellectual property rights of Quick Heal protected

under   the   Intellectual   Property   Laws   and   belongs   to

Quick Heal. Nothing contained in this Agreement grant

You   any   rights,   title,   interest   to   intellectual   property,

including   without   limitation   any   error   corrections,

enhancements, updates, or modifications to the software

and Quick Heal RDM service whether made by Quick

Heal   or   any   third   party.   You   understand   and

acknowledge that you are provided with a license to use

this software and Quick Heal RDM services subject to

the terms and conditions of this Agreement.”  

28

32.  After due consideration of the terms of agreement, the

Tribunal proceeded to observe the following in para 45 of the

impugned order :­

“45. The agreement provides that the licensee shall have

right to use software subject to terms and the conditions

mentioned in the agreement. The licensee is entitled to

use the software/RDM services from the date of license

activation   until   the   expiry   date   of   the   license.   The

licensee is also entitled for the updates and technical

support. The conditions set out in the agreement do not

interfere with the free enjoyment of the software by the

licensee. Merely because  Quick Heal ― ‖ retains title and

ownership   of   the   software   does   not   mean   that   it

interferes   with   the   right   of   the   licensee   to   use   the

software.”

33. The Tribunal ultimately concluded as under while allowing

the appeal filed by the assessee herein :­

“51. Thus, viewed from any angle, the transaction in the

present Appeal results in the right to use the software

and would amount to “deemed sale”. It is, therefore, not

possible   to   accept   the   contention   of   the   learned

Authorized Representative of the Department that the

transaction would not be covered under sub­clause (d) of

article 366(29A) of the Constitution.”

34. Thus, from the aforesaid, it is evident that the Tribunal

laid much emphasis on the fact that in accordance with the

agreement the licensee has the right to use the software subject

29

to the terms and the conditions laid therein. The Tribunal took

notice of the fact that in accordance with the agreement the

licensee is entitled to use the software/RDM service from the

date of the activation of the license till the date of its expiry. The

Tribunal also took into consideration the fact that the licensee

is also entitled for the updates and the technical support. In

view   of   the   Tribunal,   the   right   to   use   the   software   would

amount   to   the   “deemed   sale”.   The   Tribunal   rejected   the

contention of the revenue that the transaction would not be

covered   under   sub­clause   (d)   of   the   Article   366(29A)   of   the

Constitution.

RELEVANT PROVISIONS OF LAW

35. The New definition of the term “service” has been given

under the clause 44 of Section 65B of the Act 1994 which reads

as follows :­

“(44)   “service”   means   any   activity   carried   out   by   a

person   for   another   for   consideration,   and   includes   a

declared service, but shall not include­

(a) an activity which constitutes merely,–

30

(i) a transfer of title in goods or immovable property, by

way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which

is deemed to be a sale within the meaning of clause

(29A) of Article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer

in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under

any law for the time being in force.

Explanation 1.­ For the removal of doubts, it is hereby

declared   that   nothing   contained   in   this   clause   shall

apply to,–

(A)   the   functions   performed   by   the   Members   of

Parliament, Members of State Legislative, Members of

Panchayats, Members of Municipalities and Members of

other local authorities who receive any consideration in

performing the functions of that office as such member;

or

(B) the duties performed by any person who holds any

post in pursuance of the provisions of the Constitution in

that capacity; or

(C)   the   duties   performed   by   any   person   as   a

Chairperson   or   a   Member   or   a   Director   in   a   body

established   by   the   Central   Government   or   State

Governments or local authority and who is not deemed

as   an   employee   before   the   commencement   of   this

section.

Explanation   2.­For   the   purposes   of   this   clause,

transaction   in   money   shall   not   include   any   activity

relating to use of money or its conversion by cash or by

31

any   other   mode,   from   one   form,   currency   or

denomination,   to   another   form,   currency   or

denomination   for   which   a   separate   consideration   is

charged;

Explanation 3.– For the purposes of this Chapter,­

(a) an unincorporated association or a body of persons,

as the case may be, and a member thereof shall be

treated as distinct persons;

(b) an establishment of a person in the taxable territory

and  any  of   his  other  establishment   in   a  non­taxable

territory shall be treated as establishments of distinct

persons.

Explanation 4.­ A person carrying on a business through

a   branch   or  agency   or   representational   office   in   any

territory shall be treated as having an establishment in

that territory;”

36.  The analysis of the definition of “service” as above makes it

clear that the service will not include those activities which

includes   transfer,   delivery   or   supply   of   any   goods   which   is

deemed to be sale within the meaning of Clause (29A) of Article

366 of the Constitution.

37. Clause (29A) of Article 366 of the Constitution of India

defines the deemed sale. This clause reads as follows:­

“(29A) tax   on   the   sale   or   purchase   of   goods

includes—

32

(a) a tax on the transfer, otherwise than in pursuance of

a contact, of property in any goods for cash, deferred

payment or other valuable consideration;

(b) a tax on the transfer of property in goods (whether as

goods or in some other form) invoked in the execution of

a works contract;

(c) a tax on the delivery of goods on hire purchase or any

system of payment by instalments;

(d) a tax on the transfer of the right to use any goods for

any purpose (whether or not for a specified period) for

cash, deferred payment or other valuable consideration;

(e) a tax on the supply of goods by any unincorporated

association or body of persons to a member thereof for

cash, deferred payment or other valuable consideration;

(f) a tax on the supply, by way of or as part of any

service or in any other manner whatsoever, of goods,

being food or any other article for human consumption or

any   drink   (whether   or   not   intoxicating),   where   such

supply or service, is for cash, deferred payment or other

valuable consideration, 

and such transfer, delivery or supply of any goods shall

be deemed to be a sale of those goods by the person

making the transfer, delivery or supply and a purchase

of those goods by the person to whom such transfer,

delivery or supply is made;”

38. Thus, the above clause specifies the cases which the tax in

relation to sale and purchase of goods will include and also

outlines its applicability even in the case of deemed sale.

39. Section 66E deals with the concept of declared services.

This Section reads as follows:­

33

“66E. The following shall constitute declared services,

namely:––

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or

a part thereof, including a complex or building intended

for sale to a buyer, wholly or partly, except where the

entire   consideration   is   received   after   issuance   of

completion­certificate by the competent authority.

Explanation.­ For the purposes of this clause,­

(I)   the   expression   “competent   authority”   means   the

Government   or   any   authority   authorized   to   issue

completion certificate under any law for the time being

in   force   and   in   case   of   nonrequirement   of   such

certificate   from   such   authority,   from   any   of   the

following, namely:–

(A) architect registered with the Council of Architecture

constituted   under   the   Architects   Act,   1972;   (20   of

1972.) or

(B) chartered engineer registered with the Institution of

Engineers (India); or

(C) licensed surveyor of the respective local body of the

city   or   town   or   village   or   development   or   planning

authority;

(II)   the   expression   “construction”   includes   additions,

alterations, replacements or remodeling of any existing

civil structure;

(c)   temporary   transfer   or   permitting   the   use   or

enjoyment of any intellectual property right;

(d) development, design, programming, customisation,

adaptation, upgradation, enhancement, implementation

of information technology software;

(e) agreeing to the obligation to refrain from an act, or to

tolerate an act or a situation, or to do an act;

34

(f) transfer of goods by way of hiring, leasing, licensing

or in any such manner without transfer of right to use

such goods;

(g)  activities   in  relation   to  delivery  of  goods  on  hire

purchase or any system of payment by instalments;

(h) service portion in the execution of a works contract;

(i) service portion in an activity wherein goods, being

food or any other article of human consumption or any

drink (whether or not intoxicating) is supplied in any

manner as a part of the activity.”

40. Thus, the declared services include the services of renting

of   immovable   property,   works   contract,   hire

purchase/instalment   payment   system,   supply   of   food/drink,

etc. In other words, under the Constitution what is related to

deemed sale is also covered under the deemed service as per the

above Section.

41. The   Transfer   of   Right   to   use   goods   for   case,   deferred

payment or value consideration is considered as deemed sale

under sub­clause (d) of Article 366(29A) of the Constitution of

India.  Right   to   use  of  tangible   goods  service  has   also   been

brought under the service tax net by the Finance Act, 2008,

with effect from 16.05.2008 vide notification No. 18/2008­ST,

35

dated   10.05.2008   whereby   taxable   service   has   been   defined

under Section 65(105)(zzzzj) of the Act 1994 to mean as:­

“Any services provided or to be provided, to any person,

by any other person in relation to supply of tangible

goods including machinery, equipment and appliances

for   use,   without   transferring   right   of   possession   and

effective   control   of   such   machinery,   equipment   and

appliances.”

POSITION OF LAW

42. TATA Consultancy Services (supra) was a case in which

the   specific   issue   of   computer   software   packages   was

considered as is the concern in the present case also. There

was, however, a distinction drawn insofar as the 'uncanned

software'   and   'canned   software'   alternatively   termed   as

'unbranded' and 'branded' is concerned. The distinction is in

that a 'canned software' contains programmes which can be

used as such by any person purchasing it, while an 'uncanned

software'   is   one   prepared   for   a   particular   purchaser's

requirements by tweaking the original software to adapt to the

specific requirements of a particular entity. While a 'canned

software' could be sold over the shelf, an 'uncanned software' is

36

programmed to specific and particular needs and requirements.

This Court held that in India the test to determine whether a

property is “goods”, for the purpose of sales tax, is not confined

to whether the goods are tangible or intangible or incorporeal.

The  correct  test  would   be  to  determine  whether  an  item is

capable of abstraction, consumption and use and whether it

can be transmitted, transferred, delivered, stored, possessed,

etc. It was held that both in the case of 'canned' and 'uncanned'

software   all   these   are   possible   (sic   para   16).  Associated

Cement Companies Ltd. v. Commissioner of Customs, (2001)

4 SCC 593, was heavily relied on by this Court. It was held:­

"27. In our view, the term "goods" as used in Article

366(12) of the Constitution and as defined under the

said   Act   is   very   wide   and   includes   all   types   of

movable   properties,   whether   those   properties   be

tangible or intangible. We are in complete agreement

with   the   observations   made   by   this   Court   in

Associated   Cement   Companies   Ltd.   A   software

program   may   consist   of   various   commands   which

enable the computer to perform a designated task.

The copyright in that program may remain with the

originator of the program. But the moment copies are

made and marketed, it becomes goods, which are

susceptible to sales tax. Even intellectual property,

once it is put on to a media, whether it be in the form

37

of books or canvas (in case of painting) or computer

discs   or   cassettes,   and   marketed   would   become

"goods". We see no difference between a sale of a

software program on a CD/floppy disc from a sale of

music on a cassette/CD or a sale of a film on a video

cassette/CD.   In   all   such   cases,   the   intellectual

property   has   been   incorporated   on   a   media   for

purposes of transfer. Sale is not just of the media

which by itself has very little value. The software

and the media cannot be split up. What the buyer

purchases and pays for is not the disc or the CD. As

in the case of paintings or books or music or films the

buyer is purchasing the intellectual property and not

the media i.e. the paper or cassette or disc or CD.

Thus   a   transaction/sale   of   computer   software   is

clearly a sale of "goods" within the meaning of the

term   as   defined   in   the   said   Act.   The   term   "all

materials,   articles   and   commodities"   includes   both

tangible and intangible/incorporeal property which is

capable   of   abstraction,   consumption   and   use   and

which   can   be   transmitted,   transferred,   delivered,

stored, possessed, etc. The software programs have

all these attributes".

28.   At   this   stage   it   must   be   mentioned   that   Mr

Sorabjee had pointed out that the High Court has, in

the impugned judgment, held as follows:

"... In our view a correct statement would be that

all intellectual properties may not be 'goods' and

therefore   branded   software   with   which   we   are

concerned here cannot be said to fall outside the

purview of 'goods' merely because it is intellectual

property;   so   far   as   'unbranded   software'   is

concerned, it is undoubtedly intellectual property

but may perhaps be outside the ambit of 'goods'."

                                            (emphasis supplied)

38

29.   Mr   Sorabjee   submitted   that   the   High   Court

correctly   held   that   unbranded   software   was

"undoubtedly   intellectual   property".   Mr   Sorabjee

submitted that the High Court fell in error in making

a   distinction   between   branded   and   unbranded

software and erred in holding that branded software

was "goods". We are in agreement with Mr Sorabjee

when   he   contends   that   there   is   no   distinction

between   branded   and   unbranded   software.

However, we find no error in the High Court holding

that branded software is goods. In both cases, the

software is capable of being abstracted, consumed

and   use.   In   both   cases   the   software   can   be

transmitted,   transferred,   delivered,   stored,

possessed,   etc.   Thus   even   unbranded   software,

when   it   is   marketed/sold,   may   be   goods.   We,

however,   are   not   dealing   with   this   aspect   and

express   no   opinion   thereon   because   in   case   of

unbranded   software   other   questions   like   situs   of

contract   of   sale   and/or   whether   the   contract   is   a

service contract may arise".

43.  Associated  Cement  Companies  Ltd.  (supra) considered

the question whether the drawings, designs, etc. relating to

machinery or industrial technology were goods, leviable to duty

of customs on their transaction value at the time of import. It

was argued that the transfer of technology or know­how though

valuable was intangible. The technology when transmitted to

India on some media does not get converted from an intangible

thing to tangible thing or chattel and that in a contract by

39

supply of services there is no sale of goods, was the argument.

Reading Section 2(22) of the Customs Act, 1962 which defines

the word "goods", including clause (c) "baggage" and clause (e)

"any other kind of moveable property", it was held that any

moveable article brought into India by a passenger as part of

his baggage can make him liable to pay customs duty as per

the Customs Tariff Act, 1975. Any media whether in the form of

books or computer disks or cassettes which contain information

technology or ideas would necessarily be regarded as “goods”

under the aforesaid provisions of the Customs Act, these items

being   moveable   goods,   covered   by Section   2(22)(e) of   the

Customs Act. What was transferred was technical advice on

information   technology.   But   the   moment   the   information   or

advice is put on a media, whether paper or diskettes or any

other thing, the supply is of a chattel. It is in respect of the

drawings,   designs,   etc.   which   are   received   that   payment   is

made to the foreign collaborators. The question whether the

papers or diskettes etc. containing advice and/or information

are goods for the purpose of the Customs Act was answered in

40

the affirmative. This Court clearly held that  "the   intellectual

property when put on a media would be regarded as an article

on the total value of which customs duty is payable".  "When

technical material is supplied whether in the form of drawings or

manuals   the   same   are   goods   liable   to   customs   duty   on   the

transaction value in respect thereof".   It was concluded so in

paragraph 46:

"46. The concept that it is only chattel sold as chattel,

which can be regarded as goods, has no role to play

in the present statutory scheme as we have already

observed   that   the   word   "goods"   as   defined   under

    the     Customs   Act has   an   inclusive   definition   taking

within its ambit any moveable property.  The list of

goods as prescribed by the law are different items

mentioned   in   various   chapters   under   the Customs

Tariff Act, 1997 or 1999. Some of these items are

clearly   items   containing   intellectual   property   like

designs, plans, etc".

(underlining by us for emphasis)

44. We may also refer to and rely upon a decision of this Court

in the case of 20th  Century Finance Corpn. Ltd. v. State of

Maharashtra, reported in (2000) 6 SCC 12. In this decision,

this Court considered the incorporation of clause (d) of Clause

41

(29A) of Article 366 of the Constitution referred to above. It is

apt to quote the following relevant portion from the judgment :­

“26… The   various   sub­clauses   of   clause   (29A)

of Article 366 permit the imposition of tax thus: subclause   (a)   on   transfer   of   property   in   goods;   subclause   (b)   on   transfer   of   property   in   goods;   subclause (c) on delivery of goods; sub­clause (d) on

transfer of the right to use goods; sub­clause (e) on

supply of goods; and sub­clause (f) on  supply of

services. The words and such transfer, delivery or

supply.   In   the   latter   portion   of   clause   (29A),

therefore, refer to the words transfer, delivery and

supply,   as   applicable,   used   in   the   various   subclauses.   Thus,   the   transfer   of   goods   will   be   a

deemed sale in the cases of sub­clauses (a) and (b),

the delivery of goods will be a deemed sale in case

of sub­clause (c), the supply of goods and services

respectively will be deemed sales in the cases of

sub­ clauses (e) and (f) and the transfer of the right

to use any goods will be a deemed sale in the case

of sub­clause (d). Clause (29A) cannot, in our view,

be read as implying that the tax under sub­clause

(d) is to be imposed not on the transfer of the right to

use goods but on the delivery of the goods for use.

Nor, in our view, can a transfer of the right to use

goods in sub­clause (d) of clause (29A) be equated

with   the   third   sort   of   bailment   referred   to   in

Bailment   by   Palmer,   1979   edition,   page   88.   The

third sort referred to there is when goods are left

with the bailee to be used by him for hire, which

implies the transfer of the goods to the bailee. In the

case of sub­clause (d), the goods are not required to

be left with the transferee. All that is required is that

there is a transfer of the right to use the goods. In

42

our view, therefore, on a plain construction of subclause (d) of Clause (29A), the taxable event is the

transfer of the right to use the goods regardless of

when or whether the goods are delivered for use.

What   is   required   is   that   the   goods   should   be   in

existence so that they may be used. And further

contract   in   respect   thereof   is   also   required   to   be

executed. Given that, the locus of the deemed sale is

the   place   where   the   right   to   use   the   goods   is

transferred. Where the goods are when the right to

use them is transferred is of no relevance to the

locus of the deemed sale. Also of no relevance to the

deemed sale is where the goods are delivered for

use pursuant to the transfer of the right to use them,

though  it   may be  that   in  the   case  of  an  oral  or

implied   transfer   of   the   right   to   use   goods,   it   is

effected by the delivery of the goods.”

45. While holding that in a contract for the transfer of the

right to use goods, the taxable event would be the execution of

the contract for delivery of the goods, it was observed :­

“27.      Article 366(29A)(d) further shows that levy of tax

is not on use of goods but on the transfer of the right to

use   goods.   The   right   to   use   goods   accrues   only   on

account of the transfer of right. In other words, right to

use arises only on the transfer of such a right and

unless there is transfer of right, the right to use does

not arise. Therefore, it is the transfer which is sine qua

non for the right to use any goods.  If the goods are

available, the transfer of the right to use takes place

when the contract in respect thereof is executed. As

43

soon as the contract is executed, the right is vested in

the lessee. Thus, the situs of taxable event of such a

tax would be the transfer which legally transfers the

right to use goods. In other words, if the goods are

available irrespective of the fact where the goods are

located and a written contract is entered into between

the parties, the taxable event on such a deemed sale

would be the execution of the contract for the transfer

of right to use goods. But in case of an oral or implied

transfer of the right to use goods it may be effected by

the delivery of the goods.”

       (Emphasis Supplied)

46.   In  BSNL  (supra)   this   Court   took   the   view   that   a

telephone   service   is   nothing   but   a   “service”.   However,   the

nature of the transaction involved in providing the telephone

connection may be a composite contract of “service” and “sale”.

There may be a transfer of right to use the “goods” as defined in

the   providing   of   access   or   telephone   connection   by   the

telephone service provider to a subscriber. Justice Ruma Pal,

speaking for the Bench in her separate judgment, took the view

that a subscriber to a telephone service could not reasonably be

taken to have intended to purchase or obtain any right to use

electromagnetic waves or radio frequencies when a telephone

44

connection is given. Nor does the subscriber intend to use any

portion  of  the  wiring,  the  cable,  the   satellite,  the  telephone

exchange,   etc.   At   the   most,   the   concept   of   the   sale   in   a

subscriber's mind would be limited to the handset that might

have been purchased for the purposes of getting a telephone

connection. As far as the subscriber is concerned, no right to

the use of any other goods, incorporeal or corporeal, is given to

him with the telephone connection.  In such circumstances, it

was held that the electromagnetic waves or radio frequencies

are not “goods” within the meaning of the word “either in Article

366(12) or for the purpose of Article 366(29A)(b)”. Emphasis

was laid on the fact, whether there are any deliverable goods or

not. If there are no deliverable goods in existence, like the one

in BSNL    (supra), there is no transfer of user under Article

366(29A)(b) at all.

47. Justice   Dr.   AR.   Lakshmanan,   in   his   separate   but

concurring   judgment,   highlighted   the   following   attributes   in

para 97 of the judgment to constitute a transaction for the

transfer of right to use the goods:­ 

45

“97.  …

a. There must be goods available for delivery;

b.   There   must   be   a   consensus   ad   idem   as   to   the

identity of the goods; 

c. The transferee should have a legal right to use the

goods ­ consequently all legal consequences of such

use   including   any   permissions   or   licenses   required

therefor should be available to the transferee; 

d. For the period during which the transferee has such

legal right, it has to be the exclusion to the transferor  ­

this   is   the   necessary   concomitant   of   the   plain

language of the statute viz. a "transfer of the right to

use" and not merely a licence to use the goods;

e. Having transferred the right to use the goods during

the period for which it is to be transferred, the owner

cannot again transfer the same rights to others.”

48. In the case of BSNL  (supra), His Lordship noticed that

none of the aforesaid attributes were present in the relationship

between the telecom service provider and a consumer of such

services.  

49. His   Lordship   thereafter   in   para   117   of   the   judgment

referred to the Sale of Goods Act, 1930. We quote para 117 as

under:­

46

“117. Sale of Goods Act, comprehends two elements,

one   is   a   sale   and   the   other   is   delivery   of   goods.

20th Century Finance Corporation Limited vs. State of

Maharashtra, 2000 (6) SCC 12 at p. 44, para 35 ruled

that 

"35.   (c)   where   the   goods   are   available   for   the

transfer of right to use the taxable event on the

transfer   of   right   to   use   any   goods   is   on   the

transfer which results in right to use and the situs

of sale would be the place where the contract is

executed and not where the goods are located for

use.

(d) In cases where goods are not in existence or

where there is an oral or implied transfer of the

right   to   use   goods,   such   transactions   may   be

effected   by   the   delivery   of   the   goods.   In   such

cases the taxable event would be on the delivery

of goods."

50. Ultimately, His Lordship took the view that as no goods’

elements   were   involved,   the   transaction   was   purely   one   of

service as there was no transfer of right to use the goods at all. 

51.  The   following   principles   to   the   extent   relevant   may   be

summed up:­

(a) The Constitution (Forty­sixth) Amendment Act intends to

rope in various economic activities by enlarging the scope

of “tax on sale or purchase of goods” so that it may include

47

within its scope, the transfer, delivery or supply of goods

that may take place under any of the transactions referred

to in sub­clauses (a) to (f) of Clause (29A) of Article 366.

The works contracts, hire purchase contracts, supply of

food   for   human   consumption,   supply   of   goods   by

association and clubs, contract for transfer of the right to

use any goods are some such economic activities.

(b) The transfer of the right to use goods, as distinct from the

transfer of goods, is yet another economic activity intended

to be exigible to State tax.

(c) There are clear distinguishing features between ordinary

sales and deemed sales.

(d) Article 366(29A)(d) of the Constitution implies tax not on

the delivery of the goods for use, but implies tax on the

transfer of the right to use goods. The transfer of the right

to use the goods contemplated in sub­clause (d) of clause

(29A) cannot be equated with that category of bailment

where goods are left with the bailee to be used by him for

hire.

48

(e)   In   the   case   of   Article   366(29A)(d)   the   goods   are   not

required to be left with the transferee. All that is required

is that there is a transfer of the right to use goods. In such

a case taxable event occurs regardless of when or whether

the goods are delivered for use. What is required is that

the goods should be in existence so that they may be used.

(f) The levy of tax under Article 366(29A)(d) is not on the use

of goods. It is on the transfer of the right to use goods

which accrues only on account of the transfer of the right.

In other words, the right to use goods arises only on the

transfer of such right to use goods.

(g) The transfer of right is the sine qua non for the right to

use any goods, and such transfer takes place when the

contract is executed under which the right is vested in the

lessee. 

(h) The agreement or the contract between the parties would

determine the nature of the contract. Such agreement has

to   be  read as  a  whole  to  determine  the   nature  of  the

49

transaction. If the consensus ad idem as to the identity of

the good is shown the transaction is exigible to tax.

(i) The locus of the deemed sale, by transfer of the right to

use goods, is the place where the relevant right to use the

goods   is   transferred.   The   place   where   the   goods   are

situated or where the goods are delivered or used is not

relevant.

52.  From   the   judicial   decisions,   the   settled   essential

requirement of a transaction for the transfer of the right to use

the goods are : 

(i) it is not the transfer of the property in goods, but it is the

right to use the property in goods; 

(ii) Article 366(29A)(d) read with the latter part of the clause

(29A) which uses the words,  “and such transfer, delivery or

supply”… would indicate that the tax is not on the delivery of

the goods used, but on the transfer of the right to use goods

regardless of when or whether the goods are delivered for use

50

subject to the condition that the goods should be in existence

for use;

(iii) in the transaction for the transfer of the right to use goods,

delivery   of   the   goods   is   not   a   condition   precedent,   but   the

delivery of goods may be one of the elements of the transaction;

(iv)   the   effective   or   general   control   does   not   mean   always

physical control and, even if the manner, method, modalities

and the time of the use of goods is decided by the lessee or the

customer, it would be under the effective or general control over

the goods; 

(v) the approvals, concessions, licences and permits in relation

to goods would also be available to the user of goods, even if

such licences or permits are in the name of owner (transferor) of

the goods, and

(vi) during the period of contract exclusive right to use goods

along with permits, licenses, etc., vests in the lessee.

51

CONSTRUCTION OF AGREEMENT BETWEEN THE PARTIES:­

53. The salient features of the Quick Heal Internet Security

End­User License Agreement are as follows:­

1. Grant of License, not ownership

In consideration of payment of the License Fee, which is a

part   of   the   price,   Quick   Heal   (developer)   grants   the

purchaser (end­user) a license which is non­exclusive and

non­transferable.   The   developer   reserves   all   rights   not

expressly granted and retains the title and ownership of

the   software,   including   all   subsequent   copies   in   any

media.  

2. Termination

The End­user is entitled to use the software till the date on

which the license expires. Any unauthorised usage of the

software   would   result   in   automatic   and   immediate

termination of the agreement and the license granted.

3. Breach of Contract

The   developer   reserves   to   take   any   action   against

unauthorised usage. This may be criminal/civil action by

the   developer,   including   the   right   to   block   the   key

file/License key/product key with neither issuance of any

notice nor refund to the end­user.

4. Right to Updates

During the license period of the software, the end­users

are entitled to receive free software updates via Internet.

The End­users will be required to regularly download these

updates, which shall be governed by the agreement or as

amended by the developer.

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5. Limiting Liability

The End­users are solely responsible for configuring the

software   settings   and   the   results,   actions,   inactions

initiated   due   to   the   same.   The   developer   assumes   no

liability for any deletion or modification authorised by the

user in any case, and the indemnification clause would

become applicable.

6. Disclaiming Warranties

Certain features of the software may require additional

payment.   The   developer   disclaims   any   claim   for

reimbursement of expenses arising out of end­users’ usage

of such features.

7. Governing Law

The   End­users   are   obliged   to   comply   with   all   laws,

regulations of India and any foreign law, including privacy,

obscenity, confidentiality, copyright laws, while using the

software.

8. Data Collection

On   updating   every   licensed   copy,   the   developer   would

collect   “the   current   product   status   information”,   which

include the state of monitoring service in the system. This

information is used for improving the developer’s technical

support towards its customers. No files or personal data is

collected.

9. Intellectual Property Rights of the Developer

The End­users do not have any right, title, or interest to

the intellectual property, including any error corrections,

enhancements, updates, or modifications to the software,

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whether made by the developer or third party.

54.  In Delta   International   Ltd. v. Shyam   Sundar

Ganeriwalla, (1999)   4   SCC   545 : AIR   1999   SC

2607 and Ramdev   Food   Products   (P)   Ltd. v. Arvindbhai

Rambhai   Patel, (2006)   8   SCC   726,   this   Court   quoted   with

approval the following principles of construction of contracts

from the ‘Interpretation of Contracts’ by Kim Lewison, Q.C.

as follows.

“1.03 For the purpose of the construction of contracts,

the intention of the parties is the meaning of the words

they have used. There is no intention independent of

that meaning.

6.09 Where the words of a contract are capable of two

meanings,   one   of   which   is   lawful   and   the   other

unlawful, the former construction should be preferred.

Sir   Edward   Coke   [Co.   Litt.   42a]   expressed   the

proposition thus:

‘It is a general rule, that whensoever the words of

a deed, or of one of the parties without deed, may have

a double intendment and the one standeth with law and

right, and the other is wrongful and against law, the

intendment that standeth with law shall be taken.’

In   more   modern   times   that   statement   was

approved   by   the   Privy   Council   in Rodger v. Comptoir

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D'Escomple de Paris, (1869) LR 2 PC 393 : 16 ER 618, in

which Sir Joseph Napier, delivering the advice of the

Board said:

‘The   rule   that   words   shall   be   construed   most

strongly against him who uses them gives place to a

higher rule; higher because it has a moral element,

that the construction shall not be such as to work a

wrong.’

Similarly, in Fausset v. Carpenter, (1831) 2 Dow

& Cl 232 : 6 ER 715, the House of Lords accepted the

submission of counsel that the court:

‘… in judging of the design and object of a deed,

will not presume that a party executing the deed meant

to do and did what he was wrong in doing, when a

construction   may   be   put   on   the   instrument   perfectly

consistent with his doing only what he had a right to do.

However, the question of construction should not

be   approached   with   a   leaning   in   one   direction   or

another. Thus although the law frowns upon covenants

in   restraint   of   trade,   nevertheless   such   a   covenant

should not be approached on the basis that it is prima

facie illegal. ‘You are to construe the contract, and then

see whether it is legal.’”

55. The sum and substance of the ratio of the case of BSNL

(supra) as discernible is that the contract cannot be vivisected

or split into two.   Once a lumpsum has been charged for the

sale of CD (as in the case on hand) and sale tax has been paid

thereon, the revenue thereafter cannot levy service tax on the

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entire sale consideration once again on the ground that the

updates are being provided. We are of the view that the artificial

segregation of the transaction, as in the case on hand, into two

parts is not tenable in law. It is, in substance, one transaction

of sale of software and once it is accepted that the software put

in the CD is “goods”, then there cannot be any separate service

element   in   the   transaction.   We   are   saying   so  because  even

otherwise the user is put in possession and full control of the

software. It amounts to “deemed sale” which would not attract

service tax.

56. In   view   of   the   aforesaid,   we   have   reached   to   the

conclusion that the impugned order of the Tribunal suffers from

no jurisdictional or any other legal infirmity warranting any

interference at our end in the present appeal.  

57. In the result, the appeal fails and it is hereby dismissed.

58.  There shall be no order as to costs.

59. Pending application(s), if any, also stands disposed of.

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CIVIL APPEALS ARISING OUT OF S.L.P. (CIVIL) NOS. 6715­

6716 OF 2022

60. Leave granted.

61. These appeals, by special leave, are at the instance of the

assessee and is directed against the order passed by the High

Court of Judicature at Madras in Writ Appeal No. 1881 of 2021

and CMP No. 11998 of 2021 decided on 05.08.2021 by which

the High Court dismissed the writ appeal thereby affirming the

Order in Original dated 26.04.2018 passed by the respondent

herein.

FACTUAL MATRIX

62.  The   appellant   herein   obtained   the   antivirus   software

replicated from the units in Himachal Pradesh duly assessed to

Nil Central Excise duty under the Notification No. 50/2003 CE

dated 10.06.2003, and sold antivirus software in the CD form

i.e.,   as   a   “packaged   software   or   canned   software”   both

indigenously   by   remitting   appropriate   VAT   or   exported   the

same. Disputes were raised by the tax authorities claiming that

the activities of the appellant herein came within the ambit of

the Information Technology Software Service as defined under

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Section 65(105)(zzzze) of the Act 1994. The initial notices issued

ended in the confirmation of demand on the ground that since

the   appellant   was   providing   the   key   and   allowing   updates

online, it amounted to digital delivery and therefore it would fall

under the above taxable entry.

63. The appellant preferred statutory appeals against these

orders passed by the Tribunal, Chennai Branch.

64.  The Tribunal was pleased to grant interim stay as the

appellant had paid VAT on the sale of the software. While the

appeals were pending before the Tribunal, Chennai Branch, the

Department continued to issue further show cause notices from

time to time along with the issued statement of demand for

these   periods.   The   appellant   filed   a   detailed   reply   dated

17.04.2018 contending that no service tax was payable as the

liability towards the VAT had already been discharged and the

software being goods could not be made exigible to service tax.

Despite the clear pronouncement by this Court, an Order­inOriginal dated 26.04.2018 was passed confirming tax on the

regime   value   charged   by   the   appellant   for   the   sale   of   the

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software on which the VAT was paid including the value of the

software   exported,   leading   to   the   excessive   demand   not

authorized under law. Further, the authority observed in para

6.6 of his order that in terms of the judgment of this Hon’ble

Court in TCS, the character of the software as goods cannot be

taken away and that it fell within the ambit of “deemed sales”.

The said authority further imposed penalty and levied interest

as well. 

65.  The appellant filed Writ Petition No. 25923 of 2018 before

the Madras High Court and a learned single Judge admitted the

writ petition and also granted interim stay noting that the VAT

had already been paid on the goods. 

66.  While the writ petition was pending, the Tribunal, Chennai

Branch followed the decision of the Tribunal, Delhi Bench in the

case of Quick Heal Technologies Ltd. (supra) and allowed the

appeals   filed   by   the   appellant   in   their   earlier   cases.   It   is

significant   to   note   that   against   this   order   of   the   Tribunal,

Chennai   Bench   no   further   appeal   has   been   filed   by   the

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Department and thus, the view taken by the Tribunal became

final in so far as the appellant is concerned.

67. When   the   above­mentioned   Writ   Petition   No.   25923   of

2018 came up for final disposal, the learned single Judge vide

order dated 29.10.2020 dismissed the Writ Petition, inter alia,

on   the   ground   that   the   High   Court   was   not   bound   by   the

decision of the Tribunal, Delhi Bench in the case of Quick Heal

Technologies Ltd. and the appellant’s own order passed by the

Tribunal, Chennai Bench.

68.  Aggrieved by the order of the learned single Judge, the

appellant preferred the Writ Appeal No. 1881 of 2021 against

the order dated 29.10.2020 passed by the learned single Judge

in Writ Petition No. 25923 of 2018. The Division Bench vide

order dated 05.08.2021 declined to interfere with the order of

the learned single Judge on the ground that an earlier Division

Bench decision of the Madras High Court in the case of  M/s

Infotech   Software   Dealers   Association   v.   Union   of   India

(supra)   covered   the   issue.   It   also   held   that   the   anti­virus

60

software   which   is   installed   in   the   hardware   would   interact

whenever the user of the computer engages the system.

69. In such circumstances referred to above, the appellant

herein has  come up before this Court by filing the present

appeals.

70. These appeals should succeed in the light of the reasoning

assigned by us while dismissing the Civil Appeal (Diary No.

24399 of 2020), as above. 

71. However,   while   allowing   these   appeals,   we   may   only

observe that in the case of  M/s   Infotech   Software   Dealers

Association v. Union of India (supra) the challenge was to the

validity   of   Section   65(105)(zzzze)   levying   service   tax   on   the

information technology software service. The High Court held

that the question whether the software is “goods” or not would

depend on the facts and circumstances of individual case. It is

evident   on   plain   reading   of   the   judgment   rendered   by   the

Madras   High   Court   in   the   case   of  M/s   Infotech   Software

Dealers   Association  (supra) that it has not referred to the

61

decision   of   this   Court   in   the   case   of  TATA   Consultancy

Services (supra).

72. We take notice of the fact that the appellant herein had

also filed a Review Petition No. 205 of 2021 against the order

dated 05.08.2021 in the Writ Appeal No. 1881 of 2021, which

came to be rejected vide order dated 20.12.2021.

73. In view of the judgment rendered above in Civil Appeal

(Diary No. 24399 of 2020), these appeals should succeed and

deserve to be allowed.

74. In the  result, the appeals are allowed.   The impugned

order passed by the High Court dated 05.08.2021 in the Writ

Appeal No. 1881 of 2021 as also the order dated 20.12.2021

passed in the Review Petition No. 205 of 2021 in Writ Appeal

No. 1881 of 2021 are hereby set aside.

75.  There shall be no order as to costs.

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76. Pending application(s), if any, also stands disposed of.

……………………………………..J.

(ABHAY S. OKA)

…………………………………….J.

(J.B. PARDIWALA)

NEW DELHI;

AUGUST 05, 2022

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