Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
Circular No. 15 /2011-Customs
Room No. 146-H, North Block,
New Delhi the 18th March 2011.
To
The Chief Commissioner of Customs (All)
The Chief Commissioner of Central Excise (All)
The Chief Commissioner of Customs and Central Excise (All)
The Commissioner of Customs (All)
The Commissioner of Customs & Central Excise (All)
Madam/Sir,
Subject: Applicability of indirect taxes on
packaged software – regarding
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.
- The issue has been examined. According to Rule 1 of the Rules for the
interpretation of the Tariff Schedule, classification is to be determined
according to the terms of the heading and any relative Section or Chapter
Notes. Heading No. 85.23 refers to “Discs, Tapes, Solid-State Non- Volatile
Storage Devices, “Smart Cards” and other Media for the recording of Sound or
of other
phenomena, whether or not recorded, including Matrices and Masters for the
production of Discs, but excluding products of Chapter 37.” Tariff item
85238020 of this heading covers “Information Technology software.” The
supplementary note to Chapter 85 defines “Information Technology Software”
to mean any representation of instructions, data, sound or image, including
source code and object code, recorded in a machine readable form, and
capable of being manipulated or providing interactivity to a user, by means
of an automatic data processing machine. It is evident that document
conveying the right to use software by themselves do not satisfy this
definition and therefore do not qualify for classification under this tariff
item because they do not contain any representation of instructions, data,
sound or image recorded in a machine readable form, which is capable of
being manipulated or providing interactivity to a user. On the other hand,
tariff item 49070030 of heading 4907 refers directly to “Documents of title
conveying the right to use Information Technology software”. Hence as per
the said Rule 1 mentioned above, such paper licenses which are essentially
documents conveying the right to use such IT software, merit classification
under CTH 49070030. PUK cards on the other hand are not documents of title
conveying the right to use Information Technology software per se but are
actually printed matter containing numbers which when entered, enable the
importer to access right to use such IT software. Hence they are liable to
classified under CTH 4911 as “other printed matter”.
- It is, therefore, clarified 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.
- In the context of assessment of pre-packaged software imports, kind
attention is also drawn to
Notification No 30/2010- Central Excise (N.T.)
dated 21st December, 2010 by which all such packaged software or canned
software were brought under the purview of assessment based on retail sale
price, as also
Notification No.25/2011–Cus, dated 01-03-11 and
Notification
No.14/2011–CE, dated 01-03-11, whereby in case of such packaged software
which does not require affixation of Retail Sale Price (RSP), exemption has
been provided, from payment of Excise duty/ CVD, on the portion of value
representing consideration for transfer of right to use such packaged/
canned software. These exemptions have been issued in order to rule out
taxation of this portion of the value twice-once as Excise duty/Additional
duty of Customs and another time as Service Tax on the consideration that
all package software is not sold as shrink wrapped software and that
affixation of retail sale price is not required for certain categories viz.
(i) software on optical media supplied free of charge, for which right to
use or license is purchased separately; (ii) full pack –packaged software
with limited validity, not for resale and generally imported for
demonstrations or for OEMs;(iii) up-grade full pack-packaged software-
supplied free of charge under annual maintenance/subscription/software
assurance contract; and (iv) up-dates for packaged software- supplied free
of charge under annual maintenance/subscription/software assurance contract
etc.
- Accordingly, 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. These instructions may also be brought to the
knowledge of the field formations and the trade. Any difficulty faced in
implementation of these instructions may be brought to the attention of the
Board.
Yours faithfully,
Sd/- 18.03.2011
(Yogendra Garg)
Director
Tel: 23092236
Email: [email protected]
F.No.354/189 /2009-TRU
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