By TIOL News Service:

MUMBAI, MAY 10, 2016: THE ISSUE IS - Whether "access to database relating to information of stock exchange" by a trader to its customer which can be used only after installation of a software provided by such trader, is liable to be treated as a "software" and hence leviable to VAT, and it is not open to such trader to claim exemption from payment of VAT, merely because he was paying service tax on such software. YES is the answer.

Facts of the case:

The assessee is rendering service related to "online information and database access". Accordingly, the assessee was registered only under Service Tax Act, and not under Maharashtra VAT Act or Central Sales Tax Act. The assessee was procuring information from various stock exchanges on payment of charges and disseminating the same to various customers with the help of “mechanism” which was installed on the computers of the customers. During the concerned year, the assessee's office premises was visited by Investigation Branch of Sales Tax Department and an ex-parte assessment order was passed u/s 23(4) of MVAT Act by holding that the data provided by the assessee which allows the traders and investors to know the statistics on the latest bid price, offer price, last traded price, volume of trading and current trends of the market in respect of “equities”, “derivatives” and “currencies”, was a software. The assessee contended that the mechanism provided by them restricts the customers from making any commercial use of the data, as the data provided by the assessee remains the property of the stock exchanges. It was contended that if at all the mechanism provided would have been a software, the customers could have used that data for further application. It was contended that the assessee was having ownership of the mechanism, which was called "Trend & Falcon", and there was no license which was transferred in favour of the customers, and therefore, right to use the software was not transferred in any case; to the customers.

On appeal, Dy CST granted some relief to the assessee. Although the levy of VAT @5% was confirmed on the sale proceeds of "Falcon & Trend" and the consequential interest u/s 30(1) of MVAT Act was also maintained, however, he deleted the penalty imposed by the AO u/s 29(2A) levied at Rs.7,65,544/-. As per the order of the Dy CST, amount of Rs.15,31,088/- was due from and was payable by the assessee.

After hearing the parties, the Tribunal had held:

1. A perusal of the "FALCON SERVICE AGREEMENT" shows that there is specific description of material which is subject matter of the present dispute. It is stated therein, "software and/or Database and related documentation supplied by Reliable Group." The next clause in the agreement was "software", which reads as "software or any part of it and related documentation, whether it is an ancillary part of a Service to be used or whether the rental of such Software itself constitutes the Service. Software includes all executable and data files and changes done in computer’s operating system settings and registry. The software includes upgrades and enhancements and it is mentioned that the charges shall be inclusive of the service fees, installation & relocation charges. Although the agreement gives the right to download all software upgrades, software patches, new data files etc. as and when informed, however, it also states that none of the reports, query results or chart images taken from the software can be published or distributed (for a fee or without fee) without explicit written permission from the assessee. However, a careful perusal of one document which is downloaded from the official website of the assessee goes to show that one Mr. Milind Masrani, who has posed himself as Director, Sales, Reliable Software has stated, "you shall feel in your own experience- Falcon 7 is the most powerful live technical analysis software of India". This circumstance indicates that the assessee itself has advertised the product as "software". Even if it is assumed for the sake of argument that Mr. Milind Masrani may not have been Sales Director of the assessee company, still, assessee's counsel did not dispute that this document was published on the official website of the assessee. A person authorized to operate official website of the Reliable Software Systems Pvt. Ltd., could only have published this document on the official website of the assessee;

2. Merely because the software is used for a specific purpose or for specific reason, it does not cease to be a “software”. Even if it is assumed that it is useful for two minutes, five minutes or six minutes; this duration of use also cannot convert the software in something else. In any case, there is no reason to doubt that the product sold by assessee is a software, and consequently, “goods” within the purview of MVAT Act. Next it was argued that there is no parity in the policy of imposing tax between different dealers dealing in the same commodity and an attempt was made to bring to the notice of this Tribunal that the dealers dealing in identical products are paying service tax only. However, the question of parity will arise in judicial parlance only when in exactly identical case, a particular view is taken by the Tribunal. Unless and until it is shown that in identical facts and circumstances, specific view is adopted by the Tribunal; and now unless and until that view is either changed, varied or set aside by permissible modes under the law, taking a different view is not permissible; principle of parity does not have any role to play. Furthermore, even if same traders dealing in similar business are evading tax, by maintaining accounts in different modes, that fact by itself will not be a ground of exempting the present assessee from payment of VAT. In our considered opinion, therefore, there is no error in assessing the assessee under MVAT Act and imposing tax;

3. One more argument, which was advanced by assessee's counsel was that since the assessee is paying service tax, it cannot be forced to make payment under MVAT Act. As far as this argument is concerned, it is seen that since the assessee is raising separate invoices for software licenses and for the services provided by it; for visits and data updation; this fact makes it clear that separate charges are levied by assessee for sale of software to its customers, and for rendering services. It is held that when element of price of sale of software can be separated, tax can be levied for sale of the software. Careful analysis of the evidence available on record clearly goes to show that dominant intention of the assessee was to sale the software; if at all there is any element of service involved in it, it is incidental to the sale of software. In our view, therefore, merely because the assessee is paying service tax, it cannot be exempted from paying tax under MVAT Act. According to the assessee, "it has developed a software", which is required to be installed on the computer of the customer, and only after installation of such software, customer is entitled to use the data available on the server of the assessee. The software helps instant transmission of the data from the server of the assessee to the computers of customers, which is not possible without the use of software. It is also admitted position that the assessee is receiving data from various stock exchanges in numerical forms. The software of the assessee is processing that data, preparing various charts and graphs and makes it convenient to its customer to analyse it for taking proper decisions promptly. Without the use of software, such conversion of data received from various stock exchanges is not possible. There is no dispute about the fact that data of stock exchanges is available free of costs on the website of the stock exchanges. So also, it is freely made available by service providers like Money Control, Sharekhan etc. But the assessee is not providing data in the same form. It is processed, and sent to the customers. It is possible for the customers to read it only with the help of software supplied by the assessee.

(See 2016-TIOL-01-TRIBUNAL-MUM-VAT)