Information technology is a significant contributor in Indian economy. In order to facilitate and boost the growth of this sector, Government has exempted the sale of Information Technology Software when it is recorded on a media.
In Budget 2016 the Government has exempted services in relation to Information Technology Software, when such Information Technology Software is recorded on a media. This exemption is available only when it is required to declare the retail sale price (MRP/RSP). This change is brought vide Notification No. 11/2016-ST dated 01.03.2016. In respect of transactions involving supply of such media bearing RSP, not amounting to sale/deemed sale, service tax is being exempted.
The said Notification can be availed when the value of the package of such media domestically produced or imported, for the purposes of levy of the duty of central excise or the additional duty of customs leviable, as the case may be, has been determined under the Central Excise Act, 1944; and the appropriate duties of excise or customs (including the additional duty of customs), on such value have been paid by the manufacturer or duplicator or the person holding the copyright to such software or the importer, as the case may be, in respect of such media manufactured in India or imported into India.
The service provider is also required to make a declaration on the invoice relating to such service that no amount in excess of the retail sale price declared on such media has been recovered from the customer. Accordingly, central excise duty/CVD is to be paid on the value of such media with recorded Information Technology Software and the assessable value of such media is required to be determined on the basis of the RSP affixed on the package of such media.
In certain situations when customised software on media is delivered, when the media is not required to bear the RSP when supplied domestically or imported, Service Tax will be levied. Also when the software is sold without the use of any media Service Tax will come into levy. To avoid duplicity in taxation, media with recorded Information Technology Software which is not required to bear RSP is being exempted from so much of the Central Excise duty/CVD.
This step has been taken to eliminate the cascading effect of taxes, by levy of both excise/customs duty and Service Tax on the software media. Thus, the levy of excise duty/CVD and Service Tax will be mutually exclusive with effect from 01.03.2016, this change is favourable for the software industry as a whole as it will provide clearer picture of burden of taxes.