The problem of dual applicability of VAT and Service Tax on service is not taken care in the recent interim budget 2009. Currently both Service tax and vat is applicable on software licenses and shall continue furthur.
Actually w.e.f. F.Y. 2008-09 service tax is made applicable on the customized software including the license part of the customized software.Additionally VAT/CST is also applicable on the license part of the customized software. So there is a dual tax in the form of VAT/CST and Service Tax on the license part of the customized software. All Companies including Oracle,microsoft etc are charging both VAT and Service tax on the license part of their software.
“Information Technology Software” Services are brought into Service Tax net with effect from 16 May 2008. The taxable service definition covers service provided to any person, by any other person in relation to information technology software for use in the course, or furtherance, of business or commerce, including
1. Development of information technology software, study, analysis, design and programming of information technology software;
2. Acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software;
3. Acquiring the right to use information technology software supplied electronically;