“Activation Charges” Of Equipment/Software Features Covered Under The Activity Of Sales Of Goods, Not “Service”: CESTAT

The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the “activation charges” of equipment/ software features are covered under the activity of sales of goods and not covered under the provisions of “Service”.

The two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that if the software whether customized or non-customised satisfies the Rules as a “goods‟, it will also be “goods‟ for the purpose of Sales tax. Goods may be tangible properties or intangible ones. It would become goods provided it has the attributes having regard to its utility; capable of being bought and sold; and capable of being transmitted, transferred, delivered, stored, and possessed.

The appellant was dealing in Electronic and Telecom equipment. Software is embedded in the telecom equipment systems of EPABX. On scrutiny of the Balance Sheet of the Appellant, it was revealed that the Appellant has shown a certain amount as “Software Activation” income in Schedule 14.

The appellant had collected the charges from their customers in connection with after sales of goods i.e equipment/ software.

The appellant was issued three show cause notices as to why the activity of selling software should not be treated as taxable services under the category of “Business Auxiliary Services” under Section 65 of the Finance Act, 1994. The Service tax should not be demanded under Section 73(1) along with interest.

The appellant contended that service Tax is levied when taxable service is provided by the service provider to his client(s). The purchase of goods from the Appellant is not a service and such customer/ buyer of goods cannot be treated as a recipient of service. The appellant is not a provider of service, but only a seller of goods liable to Sales Tax/VAT which is paid.

The appellant urged that a transaction of sale of software is clearly a sale of “goods‟ within the meaning of the term as defined in the CST Act and Gujarat Value Added Tax Act 2003.

The issue raised was whether the appellant is liable to pay Service tax on “Software Activation Charges” under the taxable services of “Business Auxiliary Services”.

The tribunal held that service tax is not payable on the software activation charges.

Case Title: Black Box Limited Versus Commissioner of Central Excise & ST, Ahmedabad-iii

Citation: Service Tax Appeal No. 572 of 2012-DB

Date: 04.01.2023

Counsel For Appellant: P.P. Jadeja

Counsel For Respondent: Dinesh M. Prithiani

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