COMMISSIONER OF SERVICE TAX DELHI versus QUICK HEAL TECHNOLOGIES LIMITED

Citation: [2022] 17 S.C.R. 930 · Decided: 05-08-2022 · Supreme Court of India · Bench: ABHAY S. OKA · Disposal: Disposed off

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 17 S.C.R.
   [2022] 17 S.C.R. 930
930
COMMISSIONER OF SERVICE TAX DELHI
v.
QUICK HEAL TECHNOLOGIES LIMITED
(Civil Appeal No. 5167 of 2022)
AUGUST 05, 2022
[ABHAY S. OKA AND J. B. PARDIWALA, JJ.]
Service Tax – Finance Act, 1994 – s.65(105)(zzzze) and 66E
– Constitution of India –Art.366(29A) – Respondent (Assessee)
engaged in supply of Quick Heal Antivirus Software license key/
code along with replicated CDs/DVDs in the retail packs (i.e.
Information Technology Software Service) through its dealers/
distributors to the end customers in India –Contention of revenue
that transaction pertaining to software can be divided into two
components (i) sale of CD, & (ii) supply of updates – Respondent
argued that the transaction cannot be bifurcated into two
components – Held: 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 entire sale
consideration once again on the ground that the updates are being
provided – 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 – 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.
Disposing of the appeals, the Court
Held : 1.1 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 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
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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. [Para 34][951-E-G]
1.2 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.
[Para 36][953-C-D]
1.3 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 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.
[Para 52][964-B-F]
1.4 The sum and substance of the ratio of the case of BSNL
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 entire sale
consideration once again on the ground that the updates are being
COMMISSIONER OF SERVICE TAX DELHI v.

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