Draft Circular, DT. September 2005

Leviability of service tax on the taxable service of maintenance or repair of computer software

Kind attention is drawn to the decision of the Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh (Civil appeal no 2582 0f 1998) wherein the Supreme Court has ruled that all the tests required to satisfy the definition of goods are possible in the case of software and in computer software the intellectual property has been incorporated on media for the purpose of transfer and software and media cannot be split up. Therefore sale of computer software falls within the scope of sale of goods.

In case of branded software ( canned software) sold off the shelf, the software is transferred in a media and is sold as such and the Supreme Court has categorically decided that such cases fall within the definition of goods. In the case of unbranded / customized software the supplier develops the programs and generally transfers the programme in media and thereafter it is taken to the customer’s premises and loaded in their system. Thus, in this case also, the software is incorporated in a media for use. Supreme Court has held that computer software in a media is goods.

Thus in either case, the taxable service of maintenance or repair or servicing of computer software is in relation to computer software in a media, which is covered under the definition of goods as per the ruling of the Supreme Court.

It is therefore clarified that maintenance or repair or servicing of all computer software is taxable under section 65(105)(zzg) of the Finance Act, 1994. These instructions are issued in accordance with the above said decision of the Supreme Court, and in supersession of all earlier clarifications / circulars issued on the above subject.

R.Sekar
Joint Secretary-TRU

F.NO.354/132/2005-TRU

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