Recently, in the AAR- Karnataka, has decided Supply of Computer software license amounts to supply of goods in the case of M/s SPSS South Asia Private Limited, no.: KAR-ADRG-15/2021 dated 24 March 2021.
– M/s SPSS South Asia Private Limited (“Taxpayer”) is a trader engaged in importing of software license and further reselling it to domestic customers without any value additions thereto. The taxpayer basically provides an online download link to the customer to access the software.
– Notification no. 45/2017 dated 14th November 2017 & Notification no. 47/2017 dated 14th November 2017, seeks to provide concessional GST rate of 5% on ‘goods’ supplied to scientific and technical equipment’s supplied to public funded scientific & research institutions subject to fulfilment of the below conditions prescribed in the said notification:
(i) The goods are supplied to or for –
- (a) a public funded research institution under the administrative control of the Department of Space or Department of Atomic Energy or the Defence Research Development Organisation of the Government of India and such institution produces a certificate to that effect from an officer not below the rank of the Deputy Secretary to the Government of India or the Deputy Secretary to the State Government in the concerned department to the supplier at the time of supply of the specified goods; or
- (b) an institution registered with the Government of India in the Department of Scientific and Industrial Research and such institution produces a certificate from an officer not below the rank of the Deputy Secretary to the Government of India or the Deputy Secretary to the State Government in concerned department to the supplier at the time of supply of the specified goods;
(ii) The institution produces, at the time of supply, a certificate to the supplier from the Head of the Institution, in each case, certifying that the said goods are required for research purposes only;
(iii) In the case of supply of live animals for experimental purposes, the institution produces, at the time of supply, a certificate to the supplier from the Head of the Institution that the live animals are required for research purposes and enclose a no objection certificate issued by the Committee for the Purpose of Control and Supervision of Experiments on Animals
– The Taxpayer has applied to the AAAR to understand whether benefit of reduced rate is applicable to supply of online software license is ‘goods’ in terms of aforesaid notification as all the conditions are met.
Issues raised by Taxpayer
- – The term ‘goods’ as defined in section 2(52) of CGST Act, 2017 means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply
– The Taxpayer has mentioned that as per Sectoral FAQs, in terms of Schedule II of the CGST Act 2017, development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software and temporary transfer or permitting the use or enjoyment of any intellectual property right are treated as services. But, if a predeveloped or pre-designed software is supplied in any medium/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523. Thus, the Taxpayer has stated that sale of software licenses through the medium of the internet should be a supply of services.
– The Taxpayer stated that in terms of Schedule-II entry no.5(c) of CGST Act, 2017 the supply of software license is classifiable as supply of service since it involves right to use of intellectual property in the form of software
– Further, as per above, the taxpayer contended that the aforementioned notification specifically includes computer software, which is taxable at 5%. Accordingly, supply of software is taxable is covered by the said notification and taxable at concessional rate of 5%, when supplied to public funded research institutions.
- – AAR, pointed out that the software supplied by the Taxpayer amounts to supply of good since it is a pre-developed or pre-designed software made available through the use of encryption keys.
– AAR stated that as per the Explanatory Notes to the scheme of classification of services, HSN 997331 precisely excludes the limited end-user license as part of packaged software. Accordingly, the supply of software amounts to supply of goods and not supply of services and the said supply will be covered under HSN 8523.
– Further, it held that goods that the goods supplied by the Taxpayer can be used only with the aid of a computer, hence covered under “Computer Software” as mentioned in the rate notification.
– Accordingly, supply of license of pre-developed software amounts to supply of goods and is entitled to the benefit in terms of the said notification, when the said goods are supplied to public funded research institutions.