ISODA — Fighting the Lone Battle

The Infotech Software Dealers
Association ( href="http://www.dqweek.com/ISODA-urges-channel-associations-to-come-together-">ISODA),
an association of software resellers in the
country, has been formed with a primary purpose to become a voice and
settle issues faced by the software resellers. The association is a
single point of contact for discussion with the government,
distributors, and the principal companies. One issue that has been
plaguing the
association for long is IT software double taxation. Over the past
two years, ISODA has been actively fighting against double taxation
on software products. Apparently, it has set a goal, wherein it wants
a clear and sensible taxation regime where there should be no double
taxation (service tax or VAT, not both). However, the challenges in
front of ISODA are that industry associations have divergent views
about taxation, key people do not have a clear and realistic view of
IT software business, and lastly, government and industry are not in
sync.

Rajesh Kothari, Chairman of ISODA,
said, “In order to understand the nature of IT software, we have to
follow the classic story of an elephant being described by blind
people. IT software is a huge, complex and invisible elephant. And a
proper commercial and legal understanding is a must to have a purview
of whole gamut of things.” “The main issues here are that IT
software delivery model is complex, delivery of IT software and
related services are intricately linked, and it is for the supplier
to decide if IT software is goods or service. Now, we want that
bureaucracy must have clear understanding of IT software business
model and laws should be in line with current business environment,”
added Kothari.

ISODA has earlier tried to seek clarity
from the government over this confusion but did not get any
satisfactory solution from the government either. It even made
several representations to the industrial bodies such as NASSCOM,
MAIT, and feeling the need of political willpower, it took up the
issue with the Finance Ministry as well. In fact, with the
association's pursuance, the double taxation issued was also debated
in the Parliament last year. But after being dejected from all over
the places, ISODA sought the legal route as the last resort. And in
this endeavor, it filed writ petitions in the Chennai High Court. But
here too, it had to face the rejection, as the Chennai High Court
dismissed the writ petitions filed by ISODA on August 24, last year.
However, this did not deter the association from filing a review
petition and seeking a detailed clarification from the court. In the
meantime, the association continued to charge service tax and VAT
from the end customers.

The smile came back on their faces only
when the association received a notification style="font-weight: normal;">(Notification
N. 53/2010 — Service Tax) from the Ministry of Finance,
dated December 21, 2010. This
notification stated that there would be no double taxation of
software products; there would be either service tax or VAT. While
clarifying the notification on
the behalf of ISODA, Harinder Salwan, Secretary General, ISODA, said,
“Until now, ISODA has been seeking clarity from the government on
the double taxation confusion. Now with this notification, the
companies have to mention about the same to the government and at the
same time also ensure that they do not charge customer more. “This
whole confusion was hitting us
badly and it was a negative cash flow for most of the partners and
distributors as well. In fact, a lot of money was blocked with the
government. We now expect the distributors to start immediately
charging only VAT — be it on single user box or multiple user box.
Meanwhile, we have already written to the distributors and informed
the principals as well and now waiting for them to take a stand,”
commented Salwan.

ISODA, to an extent, believes that they
have won the battle in the sense that the distributors can not charge
double taxation, and they just need to sit down and apply charging
only one tax. The association
believes that it is a workable proposition for everyone. It also
alleges that the distributors were not a part of the negotiations
with the government. In fact, it is inviting the distributors to come
out in open in terms of giving clarity and discussing the same on the
negotiation table. However, ISODA has
not received any clarity even from either the distributors or the
principals. Salwan said, “We are already in talks with principals
like Microsoft and Adobe; and they are still conducting internal
meetings to come to a conclusion. So far, we have not seen any
difference in the approach from either the distributors or the
principals. According to them, it is status quo.” style="font-weight: normal;"> On
the other hand, distributors still contemplate that there are some
gray areas that need to be addressed, and unless they get some
clarity, they can not come to a consensus. A national distributor, on
the condition of anonymity, commented that there are still some
confusions prevailing over the notification that has come from the
Ministry of Finance. The gray areas exists even now. Till now, only
one part of the issue has got addressed in this notification. We are
making all the
efforts
at the government level with the help of Microsoft, and we
are just waiting for the day when style="font-weight: normal;">
the government comes out with all the clarifications. It is up to the
government to give us a clear picture on this whole issue.

Meanwhile, ISODA believes that this
pertinent problem can be resolved fully when there is a clear
understanding about the nature of IT software and its business model,
respect and trust among various stake holders, and frank discussions
among various stake holders.