Tata Consultancy Services Ltd. v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN THURSDAY, THE 21ST DAY OF JUNE 2012/31ST JYAISHTA 1934 OTR.No. 46 of 2012 () --------------------IN TA(VAT).57/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM PETITIONER(S): ------------TATA CONSULTANCY SERVICES LTD. KAKKANAD, KOCHI - 30 BY ADVS.SRI.JOSEPH VELLAPALLY (SR.) SMT.K.LATHA RESPONDENT(S): -------------- THE STATE OF KERALA BY SPECIAL GOVERNMENT PLEADER (TAXES) SRI. SOJAN JAMES THIS OTHER TAX REFERENCE HAVING BEEN FINALLY HEARD ON 21-06-2012, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** |**Annexure-A **|**:**|**COPY OF THE SHOW CAUSE NOTICE DATED 19.12.2007 ISSUED**| |---|---|---| |||**BY THE ASSESSING OFFICER COMMERCIAL TAX OFFICER (AA),**| |||**ERNAKULAM TO THE APPELLANT COMPANY**| |**Annexure-B **|**:**|**COPY OF THE REPLY FILED BY THE APPELLANT AGAINST THE**| |||**ANNEXURUE A1 SHOW CAUSE NOTICE.**| |**Annexure-c**|**:**|**COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2006-2007**| |||**DATED 30.1.2008 ISSUED BY THE COMMERCIAL TAX OFFICER**| |||**(AA), ERNAKULAM.**| |**Annexure-D **|**:**|**COPY OF THE MEMORANDUM OF APPEAL FILED BY THE APPELLANT**| |||**BEFORE THE DEPUTY COMMISSIONER (APPEALS)**| |**Annexure-E **|**:**|**COPY OF THE FIRST APPELLATE ORDER DATED 24.11.2009**| |||**ISSUED BY THE DEPUTY COMMISSIONER (APPEALS) FOR THE**| |||**YEAR 2006-2007.**| |**Annexure-F **|**:**|**COPY OF THE MEMORANDUM OF APPEAL FILED BEFORE THE SALES**| |||**TAX APPELLATE TRIBUNAL AGAINST THE ANNEXURE E FIRST**| |||**APPELLATE ORDER**| |**Annexure-G **|**:**|**COPY OF THE ORDER OF THE KERALA SALES TAX APPELLATE**| |||**TRIBUNAL, ERNAKULAM IN T.A(VAT) NO.57/2010 DATED**| |||**30.09.2010**| |**Annexure-H **|**:**|**COPY OF THE RECTIFICATION APPLICATION AGAINST THE**| |||**ANNEXURE- G ORDER FILED BY THE APPELLANT BEFORE THE**| |||**KERALA SALES TAX APPELLATE TRIBUNAL, ERNAKULAM**| |**Annexure-I **|**:**|**COPY OF THE RECTIFICATION ORDER IN RECTIFICATION**| |||**PETITION NO.14/11 IN T>A.NO.57/2010 DATED 28.3.2012**| |||**ISSUED BY THE KERALA SALES TAX APPELLATE TRIBUNAL,**| |||**ERNAKULAM**| |**Annexure-J **|**:**|**COPY OF THE STATEMENT OF 17 INVOICES COMPRISING THE**| |||**TOTAL TURNOVER OF RS.91,88,807/- AND COPY OF THOSE**| |||**RELEVANT 17 INVOICES STATED THEREON.**| ## **RESPONDENT'S EXHIBITS: NIL** **//TRUE COPY//** **P.A. TO JUDGE** **sou.** ## **THOTTATHIL B RADHAKRISHNAN & K. VINOD CHANDRAN, JJ** **---------------------------------------------------O.T.Rev. No.46 of 2012 ---------------------------------------------------Dated this the 21[st] day of June, 2012** ## **O R D E R** ## Vinod Chandran, J The short question urged in the above revision is as to whether the amount of Rs.91,88,809/- received from different clients of the Revision Petitioner, under eight different agreements, as consideration for alleged skilled labour for development of software; constitutes sale of goods as provided under Kerala Value Added Tax Act ('KVAT Act' for short). 2. The notice issued by Assessing officer produced as Annexure-A disclosed that the Assessing Officer on the strength of decisions of the Hon'ble Supreme Court in **Associate Cement Companies Ltd. v. Commissioner of Customs [2001] 4 SCC 593, Tata Consultancy Services v.** : 2 : WPC. **State of Andra Pradesh [2005] 1 SCC 308** as also a decision of a Division Bench of this Court in **Mechanical Assembly System (India) Pvt. Ltd. v. State of Kerala [2006] 144 STC 536** called upon the assessee to show cause as to why the receipts allegedly received as consideration for deputing personnel for customisation of software should not be treated as sale, exigible to tax under KVAT Act. The assessee/Revision petitioner had filed objections. The Assessing Officer by Annexure-C order found that identical issues were allegedly discussed in the decisions referred and that software and media cannot be split up. Since the definition of “Commodities” includes both tangible/intangible incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc., the transaction of the assessee would constitute sale of goods within the meaning of KVAT Act, and is hence exigible to tax. 3. First Appellate Authority also concurred with the Assessing Authority. But for the discussion of the various WPC. : 3 : decisions cited above and the proposition of law declared by the said decisions, we do not find either the Assessing Authority or the first Appellate Authority adverting to the facts of the case to bring the transaction within the contours of the law declared by the Hon'ble Supreme Court. 4. The Tribunal, however, has made attempts to consider the terms of the agreement. The Tribunal after extracting the definition of software as it appeared in one of the agreements found that the labour cost in developing the software would form part of the software. True, there can be no fiction deeming the transaction as sale of goods other than that provided in the six instances specified in Article 366 (29 A) of the Constitution of India brought in by 46[th] amendment. The transaction which are not otherwise sales of goods can be deemed to be so only in the said six instances. The fictional division of goods and services aka labour charges cannot be resorted to in any other transaction. Neither the State can attempt to bring in such a transaction within the definition of sale of goods nor can the assessee attempt such artificial : 4 : WPC. division unless it falls under the above six specific instances. However, the materials for an inference either way is unavailable from the orders of the three fact finding authorities. 5. Precedents are not closed corpus of theories to be applied mechanically. Precedents should inform and educate the judicial and quasi judicial authorities about the ramifications of the law established as relevant to facts established in each case. Law laid down has to be applied to the facts of each case. Merely because computer software has been held to be coming within the definition of “goods” under the various sales tax enactments; that does not on its own lead to a conclusion that any agreement relating to software would attract the definition of sale of goods. It is apposite to remind ourselves as also the lower authorities, the caution expressed by the Hon'ble Supreme Court in **BSNL v. Union of India [2006] 3 SCC 1** “But the 46[th] amendment does not give a licence for example to assume that a WPC. : 5 : transaction is a sale and then to look around for what could be the goods. The word “goods” has not been altered by the 46[th] Amendment. That ingredient of a sale continues to have the same definition.” 6. **Tata consultancy Services** case (supra) held in paragraph 24: “ ........ A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. 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 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 programme 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 WPC. : 6 : property has been incorporated on a media for purposes of transfer.” The Supreme Court has also observed that even unbranded software when it is marketed/sold may be goods but refused to express any opinion thereon because then other questions like situs of contract of sale and/or whether the contract is a contract of service may arise. 6. This enquiry is absent in the orders of the fact finding authorities. In the instant case, at the stage of rectification the assessee had brought to the notice of the Tribunal that there were eight different agreements governing the disputed amount. We also find that in the original order of the Tribunal, the issue of the receipts received towards Annual Maintenance Contract was remanded to the Assessing Officer for fresh consideration. We are of the opinion that the transaction which are the subject matter of the above revision also ought to be considered afresh by the Assessing Authority with referencen to the facts. In such circumstances, we allow the above tax revision case remanding the issue regarding the WPC. : 7 : exigibility to tax on the alleged consideration received for skilled labour for fresh consideration of the Assessing Authority. Sd/- **THOTTATHIL B RADHAKRISHNAN (JUDGE)** Sd/- **K. VINOD CHANDRAN (JUDGE)** sou. // True copy // P.A. to Judge. WPC. : 8 : **THOTTATHIL B RADHAKRISHNAN & K. VINOD CHANDRAN, JJ** **---------------------------------------------------C.M.Appl.No.317 of 2012 in O.T.Rev. No.46 of 2012 ---------------------------------------------------Dated this the 21[st] day of June, 2012** ## **O R D E R** ## Vinod Chandran, J This application is to condone the delay of 610 days in filing the above revision. According to the averments in the affidavit, the delay was caused since the revision petitioner herein who was the appellant before the Tribunal had filed a rectification petition before the Tribunal, which was disposed of only on 28.3.2012. The original order of the Tribunal in appeal is dated 30.9.2010. The rectification application was filed within time on 5.1.2011. The rectification petition having been dismissed on 28.3.2012 the date noted for appearance to WPC. : 9 : receive the copy was 4.5.2012. In such circumstances, since the Revision petitioner has invoked other remedies available under the statute we are of the opinion that the application for condonation of delay can be allowed and we do so. ## **THOTTATHIL B RADHAKRISHNAN (JUDGE)** ## **K. VINOD CHANDRAN (JUDGE)** sou.