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.
52
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,
53
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
54
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
55
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.
56
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
57
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
58
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
59
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.
62
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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