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  • The Supreme Court dismissed the Commissioner of Service Tax's appeals seeking to levy service tax of over Rs 56 crores on Quick Heal Technologies Ltd for the sale of anti-virus software between 2012 and 2014. 
  • The Court ruled that the sale of software on CDs/DVDs is a sale of goods, and that once sales tax is paid on the purchase price, service tax is not levied on the same transaction because updates are provided to the customer. 
  • According to Article 366(29A)(d) of the Constitution, the End User License Agreement that grants the end user the licence to use the software is a transfer of the right to use goods and a "deemed sale."
  • The bench upheld the Customs Excise and Service Tax Appellate Tribunal's (CETSTAT) decision that service tax is not applicable to the retail sale of packaged software and dismissed the revenue's appeals against the CETSTAT ruling in favour of QuickHeal. 
  • The judgement written by Justice Pardiwala relied heavily on the Constitution Bench decision in the Tata Consultancy Services case, which held that the sale of packaged software in medium such as CD/DVD to the end customer is a sale of goods. In TCS, it was held that in India, the test for determining whether a property is "goods" for the purposes of sales tax is not limited to whether the goods are tangible, intangible, or incorporeal.
  • The revenue department in this case argued that the service tax is leviable on the End User Licensing Agreement (EULA), under which the company has agreed to provide the customer with regular electronic updates on the software that was originally installed.
  •  The revenue department relied on the decision in BSNL vs. Union of India, which addressed whether the sale of mobile SIM cards would be subject to sales tax or service tax. Based on this precedent, the revenue argued that the software EULA's service component can be dissected. 
  • The Supreme Court noted that in the BSNL case, it was determined that access to electromagnetic waves provided by a mobile telephone company was not a sale of goods, but rather a service.
  • The Court also cited Constitutional Article 366(29A), which defines certain transactions as "deemed sales." 
  • The transfer of the right to use any goods for any purpose for valuable consideration is considered a sale under Article 366(29A)(d). 
  • The Court also noted that an examination of the definition of "service" as provided in Section 65B(44) of the Finance Act 1994 reveals that it does not include activities such as the transfer, delivery, or supply of any goods that are deemed to be sales under Clause (29A) of Article 366 of the Constitution.
  • The Court dismissed the Commissioner's appeals, ruling that the Tribunal's impugned order has no jurisdictional or other legal flaws.
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