Information technology software services under service tax
Definition and scope of service:
“Information technology software” means any representation of instruction, 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.
“Taxable Service” means any service provided or to be provided to any person, by any other person in relation to information technology software, including,-
(i) Development of information technology software,
ii) Study, analysis, design and programming of information technology software,
(iii) Adaptation, up gradation, enhancement, implementation and other similar services related to information technology software,
(iv) Providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specification for a database design, guidance and assistance during the start up phase of a new system, specifications to secure a database, advice on proprietary information technology software,
(v) Providing the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,
(vi) Providing the right to use information technology software supplied electronically.
In short we can say that such information technology software services are in relation to
- Up gradation
- Implementation of information technology
And these services are taxable under “information technology software services”
Liability under reverse charge and place of provision rule :
Wherever the service provider is located outside the taxable territory but the service is being provided in taxable territory, in terms of place of provision of services rules,2012, the tax shall be payable by service receiver, and place of provision of ‘information technology software services’ shall be the place where the receiver of service is located.
Some important clarification by board or ministry of finance
- It is a settled position of law that pre-packaged or canned software which is put on media is in the nature of goods. so sale of pre-packaged or canned software is, therefore, in the nature of sale of goods and is not covered in service tax
- On site development of software is covered under the category of development of information technology software services so they are covered under this entry.
- In case where contract is given for customized development of software and the customized software so developed is delivered to the client on media like a CD then in such a case although the software is finally delivered in the form of goods, but the contract is essentially for design and development of software so it would fall in the declared list entry. The CD remains only a media to transmit or deleiver the outcome of which is essentially and pre-dominantly a contract of service. Therefore, such a transaction would not be excluded from the ambit of the definition of ‘service’ as the transaction does not involve’ only transfer of title in goods and dominant nature of the transaction is that of provision of service.
- Services provided in relation to advice, consultancy and assistance on matters related to IT software shall be leviable to service tax under the IT software service. Consulting engineer’s service [section 65(105)(g)] in the discipline of computer hardware engineering is leviable to service tax whereas consulting engineer’s service in the discipline of computer software engineering is not leviable to service tax by way of specific exclusion.