In Re: Solize India Technologies Pvt. Ltd. - Order dated Apr.23, 2020 - Authority for Advance Rulings (Karnataka)
Background: The Company re-sells pre-developed or pre-designed software, which are made available through the use of encryption keys. Such off-the-shelf software is not developed for any specific client, i.e., it is not customised.
Observation: The term "Computer Software" is not defined under the GST law. However, according to the FAQs issued by the Government relating to IT/ITES sector: "In terms of Schedule II of the CGST Act 2017, development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software and temporary transfer or permitting the use or enjoyment of any intellectual property right are treated as services. But, if a pre-developed or pre-designed software is supplied in any medium/storage (commonly bought off-the-shelf) or made available through the use of encryption keys, the same is treated as a supply of goods classifiable under heading 8523."
Ruling: Supply of software (which is not designed or developed specifically for any customer, i.e., without customisation) amounts to supply of goods under the GST law.
Author's Comment(s): The term "information technology software" is not defined in the CGST Act. However, it is defined under Chapters 49 and 85 to the Customs Tariff Act. which applies to the interpretation of Notification No.1/2017-Central Tax (Rate). It is defined therein to mean 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 an automatic data processing machine.
The terms "information technology software" / "computer software" find multiple references under the GST Tariff:
- 8523 80 20 - Information technology software;
- 997331 - Licensing services for the right to use computer software and databases;
- 998434 - Software downloads;
- 99831 - Information technology services;
- 4907 00 30 - Documents of title conveying the right to use Information Technology software;
- 4911 99 10 - Hard copy (printed) of computer software.
Hence, it is imperative to read the underlying agreement(s), understand the product / service and determine the classification appropriately.
