Andhra Pradesh

IT firms in tax row with Andhra Government

Y. Mallikarjun

Government to levy 4 p.c. tax on certain categories of software

HYDERABAD: Several Information Technology (IT) majors are locked in a dispute with the Andhra Pradesh Government over the latter's decision to levy 4 per cent tax on certain categories of software and one of them has even moved the appellate authority.

Among them, a top IT company has been served a demand notice by the Commercial Taxes Department for payment of sales tax of around Rs. 5 crore for three years as it has not been satisfied by the reply to a show- cause notice sent earlier. Rejecting the department's contention, the company filed a case before the appellate authority contending that it had only provided service and not produced goods.

Sources in the department told The Hindu that replies were awaited from a few other IT majors who had also been served show-cause notices. In one instance, a demand notice for payment of around Rs. 3 crore per annum was served on the developer of an IT park for leasing out the space to various companies.

The Vigilance and Enforcement Department, after inspecting premises of some major software companies, advised the Commercial Taxes Department to collect what it called "evaded tax" of Rs.10 crore in the case of four dealers involved in development and supply of "customised/unbranded software" for 2003-04 to 2005-06.

Referring to the Supreme Court's observations in the TCS Vs. State of AP (2004), the department cited the apex court's observation that even unbranded software when marketed/sold may be goods. Stating that the department had obtained information in the case of the four dealers to show that that there was a contract for supply of unbranded software and hence the consideration received towards such supply of unbranded software was liable to tax under the AP Government Sales Tax Act, 1975 and APVAT Act, 2005, "since unbranded software is also goods."

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