Doubts previal over software service tax

The Union Budget announcement this year notified that prepackaged software
boxes will be exempted from levying service tax which is currently at 10
percent. While this long pending step by the government has been welcomed by
most software resellers, many think that the wording in the notification is
quite vague. According to Dhiren Mehta of Magnamious Systems, "With reduction in
price, people would opt to buy more from the legal route rather than purchasing
pirated copies." Rajeev Phadtere, CEO of C-Dot Systems said, "This is a positive
step by the government and will definitely benefit retailers of packaged
software."

This is because of the way the exemption notification has been worded. The
official notification states that "The Central Government...hereby exempts the
taxable service..., for packaged or canned software, intended for single use and
packed accordingly, from the whole of service tax." Most partners however are
unclear about what 'single use' really implies and hence status quo remains.
Devesh Aggarwal, President, ISODA said, "It is good that the ball has been set
rolling in the right direction but it remains to be seen whether this gets
implemented. Distributors are still not clear about the definition of single
use. Does it mean a single user on a single PC or a single organization?"
Concurred Paresh Shah of PH Teknow, "There is no clarity among distributors
whether they have to charge service tax on the counter veiling duty applicable
on imported software boxes. There are essentially three modes of delivery of
software: one is directly in the form of external media like CDs etc; the second
is in the form of paper licenses along with media; and the third is
electronically downloaded."Sudarsan Ranganathan, CEO, Veeras Infotek said, "When
they say that exemption is on licenses for single use, do they mean single use
by one person, one company or an entity? The ambiguity is over the
interpretation of the term single use." PN Prasad, President, Confed ITA feels
that this is just a ploy by the government to not really commit in terms of
actually implementing reforms .

Finally in order to clear the air surrounding the issue, channels are
consulting tax experts as well as government bodies in order to set the record
straight. ISODA's Aggarwal felt the initiative to seek clarification should be
headed by vendors. "We as a dealer body will be lobbying with both the Ministry
of Finance and Ministry of IT to get more clarity on this but ideally this
should be driven from the top by vendors, but no one wants to try and bell the
cat," signed off Aggarwal.

John Jacob

johnj@cybermedia.co.in