Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of the information technology software under Declared services [Section 66E] :

(a) Sale of pre-packaged or canned software: It is a settled position of law that prepackaged or canned software which is put on a media is in the nature of goods. Sale of pre-packaged or canned software is, therefore, in the nature of sale of goods and is not covered in this entry.

(b) Site development of software: On site development of software is covered under the category of development of information technology software and hence, taxable.

(c) Providing advice, consultancy and assistance on matters relating to information technology software: These services may not be covered under the declared list entry relating to information technology software. However, such activities when carried out by a person for another for consideration would fall within the definition of service and hence chargeable to service tax if other requirements of taxability are satisfied.

(d) Providing a license to use pre-packaged software: As per the decision of the Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh 2002(178) ELT 22(SC), in case a pre-packaged or canned software or shrink wrapped software is sold then the transaction would be in the nature of sale of goods and no service tax would be leviable. This judgement is applicable in case the pre-packaged software is put on a media before sale. In such a case the transaction will go out of the ambit of definition of service as it would be an activity involving only a transfer of title in goods.

However, if a pre-packaged or canned software is not sold but is transferred under a license to use such software, the terms and conditions of the license to use such software would have to be seen to come to the conclusion as to whether the license to use packaged software involves transfer of ‘right to use‘ such software in the sense the phrase has been used in sub-clause (d) of article 366(29A) of the Constitution.

(e) Information technology software means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment [Section 65B(28)].