Karnataka High Court The State Of Karnataka vs M/S Kinfotech Pvt Ltd on 15 March, 2022 DATED THIS THE 15TH DAY OF MARCH, 2022 PRESENT THE HON'BLE MRS.JUSTICE S.SUJATHA AND THE HON'BLE MR. JUSTICE SHIVASHANKAR AMARANNAVAR S.T.R.P.No.156/2018 BETWEEN : THE STATE OF KARNATAKA, REP BY THE SECRETARY, FINANCE DEPARTMENT, VIDHANA SOUDHA, BENGALURU560 001. ...PETITIONER (BY SRI JEEVAN J. NEERALGI, AGA.) AND : M/s KINFOTECH PVT. LTD., NO.2/10, AJAY PLAZA, 1ST MAIN, N.S.PALYA, BANNERGHATTA ROAD, BENGALURU560 076 ...RESPONDENT (BY SRI CHANDRASHEKARA K., ADV.) THIS STRP IS FILED UNDER SECTION 65(1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED 31.10.2017 PASSED IN STA NOS.2262 TO 2285/2013 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT BANGALORE, ALLOWING THE APPEALS FILED AGAINST THE ORDER DATED 29.06.2013 PASSED IN VATAP 241 TO 264/1213 ON THE FILE OF THE JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS3) BANGALORE, DISMISING THE APPEALS BY UPHOLDING THE ORDER DATED 31.03.2012 2 PASSED BY THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT)3.3, DVO3, BANGALORE, FOR THE TAX PERIODS OF APRIL 2009 TO MARCH 2011. THIS PETITION COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., MADE THE FOLLOWING: ORDER This Sales Tax Revision Petition is filed by the State of Karnataka under Section 65(1) of the Karnataka Value Added Tax Act, 2003 ('Act' for short) challenging the order dated 31.10.2017 passed by the Karnataka Appellate Tribunal at Bengaluru ('Tribunal' for short) in STA Nos.2262 to 2285/2013 relating to the tax periods April 2009 to March 2011. 2. The respondent herein is a dealer registered under the provisions of the Act and is engaged in the trading of computer software and hardware. The respondent is a channel partner for various software companies such as Microsoft, McAfee etc. During the tax periods in question, the respondent had effected 3 sales of software licences and had paid tax under the provisions of the Act. 3. When the case was taken up for audit, the prescribed authority has noticed that no tax was paid on the turnover relating to the renewal of software licences. Accordingly, after issuance of notice and upon consideration of the respondent's reply, the respondent was reassessed to tax under Section 39(1) of the Act levying tax on the amount received by the respondent in respect of the renewal of software licences. The assessing authority further levied interest and penalty under Sections 36(1) and 72(2) of the Act respectively. Being aggrieved by the said reassessment orders, the respondent had preferred appeals before the first appellate authority, which dismissed the appeals confirming the reassessment orders. Being aggrieved, the respondent had approached the Tribunal under Section 63(1) of the Act. The Tribunal, after hearing the 4 matter, allowed the respondent's appeals setting aside the orders of the first appellate authority and the assessing authority. Hence, this revision petition is filed by the State raising the following question of law; "Whether the Tribunal was right in holding that the turnover received by the respondent in respect of renewal of software licences is not liable to be tax under the provisions of the KVAT Act?" 4. Learned Additional Government Advocate appearing for the petitioner State submitted that the sale of software licences being liable to tax under Section 4(1)(a)(ii) of the Act read with Entry 34 of the III Schedule, the renewal of software licences also is liable to tax which has the characteristics of sale of goods. Elaborating the arguments on this point, it was submitted that, if the validity period of the software licence expired, the customer would not be able to operate the software. If the customer wishes to continue using the software, renewal of the same is 5 essential which permits the customer to use the software for a new extended period of time. The Tribunal grossly erred in holding that the renewal of software licence is merely a service and not transfer of goods. Thus, the learned Additional Government Advocate argued that the renewal of software licence is exigible to levy of sales tax under the provisions of the Act as deemed sales i.e., transfer of right to use the goods. 5. Learned counsel appearing for the respondent assessee justifying the impugned order submitted that the tran