Applicability of indirect taxes on packaged software - Board Clarifies
REPRESENTATIONS have been received from some industry association on behalf of software dealers about difficulties being expressed in the assessment to customs duty of documents of title for IT software or documents that enable the transfer of the right to use such software at the time of its sale.
It has been reported that there are frequent imports of such documents without any accompanying software. Such packages do not contain software but consist of paper licenses or PUK (Personal Unlocking Key, usually in the form of a scratch card of paper board or plastic) that are used to convey the right to use such IT software. The software in these cases could be freely downloadable or loaded by the OEM supplier under an arrangement with the software company as pre-loaded trial version of software on the computer system requiring the customer to purchase license or PUK after the trial period. Typically these licenses are used either to authorize additional uses against a sale of IT software that has already taken place in the past or to service transactions where the connected software is downloaded electronically by the customer.
It has been pointed out that some of the field formations are insisting on the classification of such documents, even when imported without the packaged software, under CTH 8523 i.e. the heading applicable to IT software. It has also been represented that in certain cases the entire value of the license representing the right to use such IT software is sought to be loaded to the value of past imports of IT software by the importer.
Board clarifies that paper licenses or PUKs merit classification as per their individual character under heading 4907 in case of paper license and heading 4911 in case of PUK card, the same being other printed matter.
All packaged/ canned software imported in shrink wrapped packages, will attract Excise duty/CVD on such retail sale price declared being the combined value of the software and the licenses (right to use).
Such software will, however, be exempt from payment of service tax under the category ITSS (as provided in Notification No. 53/2010-ST dated 21st December 2010). On the other hand, such packaged/ canned software, on which affixation of retail sale price is not required under the relevant provisions for the packaged commodities, and the assessment is based therefore, on the value determined under section 4 of the central excise act, 1944, the excise duty/ CVD will be charged only on the value, excluding the value representing consideration for transfer of right to use such packaged/ canned software.
However, service tax under the category ITSS would be levied on such portion subsequently.
All pending assessments of software, paper licenses and PUK cards may be finalized accordingly.
CBEC Circular No. 15/2011-Customs, Dated: March 18, 2011