SERVICE TAX CHARGE ON SOFTWARE

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 December 2009 Dear Sir,
On of my dealer from where i purchse Windows xp professional, He is charging Basic software price 7000 and service tax 721.00 and d vat 309.00 total bill value is 8029.84, is it right.

how is it possible, he was said there is some amendment in service tax/exicse due to the software is not indian and govt not getting excise duty on them so service tax charged.

Harish

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
Follow

28 December 2009 Yes Software products both VAT & Service tax applicable

Murtaza I Bhagat

Murtaza I Bhagat (Expert)
Follow

28 December 2009 agree with expert,

Querist : Anonymous

Querist : Anonymous (Querist)

04 January 2010 DEAR SIR,

SERVICE TAX CHARGE ON THE BASIC VALUE OF THE SOFTWARE AND ADD OF SERVICE TAX & THEN SALES TAX CHARGE ON THEM, IS IT RIGHT, SIR GIVE NOTIFICATION NO IF ANY

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
Follow

24 July 2025 Yes, during the period around 2009, both VAT and Service Tax were applicable on software, but the applicability depended on whether the software was packaged (off-the-shelf) or customized.

Here's a clear explanation:
🖥️ Types of Software and Tax Treatment (as of 2009)
Type of Software Tax Applicable Explanation
Packaged (Off-the-shelf) software like Windows XP VAT (Sales Tax) only Treated as "goods". Subject to VAT. No Service Tax.
Customized software / Licensing / Support Service Tax (under “Information Technology Software Service”) Treated as “service”. Service tax @ 10.3% was applicable in 2009.

📜 Relevant Notifications & Circulars
Budget 2008: Introduced "Information Technology Software Services" as a taxable service under service tax.

Taxable from 16 May 2008

Covered:

Development, design, customization, adaptation, upgradation, enhancement, implementation of information technology software

Licensing of software for use

CBEC Circular No. 81/2/2005-ST (dated 7 October 2005) – clarified when software was considered goods and when it was considered services.

Service Tax Notification No. 36/2010-ST, and various case laws (like TCS vs State of AP) helped distinguish between goods (VAT) and services (Service Tax).

🧾 In Your Case:
You purchased Windows XP Professional, which is standard, off-the-shelf software. So:

✅ Only VAT should apply.
🚫 Service Tax is not applicable on standard software sold as goods.

If your dealer charged both VAT and Service Tax on packaged software, it's incorrect — dual taxation on the same component was not allowed for off-the-shelf software.

✅ Correct Billing for Windows XP (Off-the-shelf):
Basic Price: ₹7,000

VAT @ 4% or 5% (varied by state): ₹280 to ₹350

No Service Tax

If they included a license fee or support, service tax might apply only to that service portion, not on the entire software.

📌 Actionable Advice:
Ask the dealer to separate goods and services, and tax accordingly.

If wrongly charged, you can ask for a corrected invoice or refund of the Service Tax.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now