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 end­
customers 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 pre­
packaged/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.),
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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.”
17

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.
18

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   non­
transferable   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   20 th
  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: sub­
clause   (a)   on   transfer   of   property   in   goods;   sub­
clause   (b)   on   transfer   of   property   in   goods;   sub­
clause   (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   sub­
clauses.   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   sub­
clause   (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.   S ale   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.
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(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   Order­in­
Original   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.
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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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