Order Date – 22 September 2023

Parties: Yokogawa India Limited vs. C.C.E. & S.T.-BHAVNAGAR

Facts –

• The appellant, Yokogawa India Limited are engaged in the manufacture of “Distributed Control Systems” (DSC). They have been availing exemption under Notification No. 6/2006-CE dt. 01/03/2006 under the categoryof Customized Software mentioned at Sl. No. 27 of the said notification by treating the customized software as goods. 
• After introduction of service tax on ‘Information Technology Software Services (ITSS, for short) w.e.f. 16/05/2008 and subsequent amendments to the said definition in 2009, it is alleged by the Department that the activities undertaken by them to ITSS as per the requirement of the customers, they failed to discharge service tax on the customized software for the period from 16/05/2008 to 31/08/2009.
• Periodical Show-cause notices were issued to the appellant for recovery of the said service tax amount along with interest and penalties, later adjudicated and confirmed with interest and penalties

Issue –

• Whether the imported software, customized and sold/cleared by the Appellant along with DCS is considered as ‘excisable goods’ or as ‘service’?

Order –

• The Tribunal observed from the purchase order that the software imported by the appellant was customized according to the need of the individual DCS, supplied the same along with hardware being a condition of the of sale of said DCS. The said software cannot be used by anybody else other than the customer to whom the same are supplied along with the hardware. 
• This clearly indicate that the intention of the appellant in supplying the software to their customers, is for its use along with the hardware; it does not indicate that the ownership of the software is retained by the Appellant. On the contrary, it is transferred to the customers in a media i.e. CD and the price of the said software separately indicated in the Appendix B to the purchase Order.
• Hence, the presence of an element of pure service as alleged by the Revenue and confirmed by the Commissioner is not the intention of the parties to the transaction. Merely because the relevant customs Notification refers to drawing and designs as ‘goods’ and assessed so by the Customs Authorities, the levy of service tax on the same cannot outrightly be discarded. The intention of the parties to the transaction needs to be ascertained.
• In the present case, the Purchase Orders placed by the customers on the appellant reveal that the transaction between the appellant and their customers are not for supply of software as that of a ‘service’, but it is sale of the customized software on a CD as part of the DCS; accordingly, the same should be considered as ‘excisable goods’ and not as ‘service’, precisely, ITSS.
• Hence the impugned orders are set aside and appeals are allowed.