Supply of software licence- whether supply of goods or services under GST

Question before Authority:

Does the supply of licenses for internet downloaded software fall within the ambit of Notification No. 47/2017- Integrated Tax (Rate) dated 14^th November, 2017 & Notification No. 45/2017- Central Tax (Rate) dated 14.11.2017?

Brief Facts:

• The applicant is an authorized reseller for various IBM SPSS software in India. It is a pure trader in such software and does not develop/ modify any software prior to selling it to customer.
• The applicant on the basis of order from customer, places an order for software license from its principle in Singapore. The applicant provides a download link to the software that provides the software license code to its customer.
• The applicant also provides a physical backup CD containing the software for customers’ convenience.
• The applicant is currently billing the software under the HSN code 997331.
• The applicant stated that the Ministry of Finance vide Notification No. 45/2017- CT (Rate) and Notification No. 47/2017 – IT (Rate) has provided for a reduced rate of tax when certain supplies are made to public funded scientific and research institutions.
• Accordingly, the applicant is of the view that if their products fall under the “goods”, they should be able to supply at reduced rate of GST @ 5% and the “goods” include computer software, CD-ROM, recorded magnetic tapes, microfilms etc.

Observation of Authority:

• The core issue before us is to decide the classification of the supply of software licence by the applicant i.e. whether it amounts to supply of goods or services.
• We observe that the software supplied by the applicant is a pre-developed or pre-designed software and made available through the use of encryption keys and hence it satisfies all the conditions that are required to be satisfied to cover them under the definition of “goods”.
• Further the goods which are supplied by the applicant cannot be used without the aid of the computer and has to be loaded on a computer and then after activation would become usable and hence the goods supplied are “Computer Software” and more specifically covered under “Application Software”.
• Further the Explanatory Notes to the Scheme of Classification of Services stipulates that the service of limited end-user licence as part of packaged software are excluded from the SAC 997331, that covers Licensing services for the right to use computer software and databases.
• Hence, the supply made by the applicant is covered under “Supply of goods” and the said supply is covered under tariff heading 8523.

Ruling:

The Notification No. 45/2017- CT (Rate) and Notification No. 47/2017- IT (Rate) stipulates GST rate of 5% if the goods of computer software are supplied to public funded research institutions. In this case, the applicant is supplying computer software to National Institute of Science Education and Research which is a public funded research institution. Therefore, the aforesaid notifications are applicable to the applicant.

Read complete order: http://www.gstcouncil.gov.in/sites/default/files/AAR-Dynamic/KAR_AAR_15_2021_24.03.2021_SPSS%20SAPL.pdf