Associations step in to resolve software issue

Post the government of India's stance to charge additional service tax on
software licenses, associations across the country have united to take legal
recourse on the issue. While some of the bodies have already made an effort to
approach the various tax departments and requested them to take notice of the
situation others are planning to move to court. Besides, many of the
associations have directed their members not to bill and purchase material, till
the issue is resolved.

Saket Kapur, Secretary, Progressive Channel Association of IT (PCAIT) stated,
“We are planning to write a letter to the Finance Minister in this regard and
give him feedback about the current scenario. We will also apprise him that
following this move software will become unaffordable and consequently encourage
piracy further.”

Kapur also mentioned that the situation is likely to worsen as according to
industry reports, with the service and sales tax already being levied, custom
duty will also be charged on the software licenses. This will result in yet
another price hike and further complicate the matter.

Creating awareness

In Chennai, Sudarsan Ranganathan, CEO of Veeras Infotek is taking the lead
in raising the issue along with other dealers in the region. The dealer
community in Chennai is planning to meet the IT department to clarify the tax
deducted at source (TDS) portion and the service tax department to understand
the implications of service tax being levied on software licenses. “At present
the entire issue is very confusing as distributors and vendors are interpreting
the policy in a manner not acceptable to the dealers and one that is not
justified.”

He further mentioned that according to the Supreme Court ruling both taxes
(service and VAT) cannot be applied on software licenses. Hence dealers are
planning to make a representation to the Central Tax Department and will be
meeting with officials at the Tax Research Unit. However, the plan of action is
yet to be chalked out and as of now only a legal opinion has been taken on the
matter.

Dealers are also planning to file a writ petition in the Supreme Court in
order to sort the issue amicably. On the other hand Ranganathan mentioned that
some of the dealers were seeking an exemption on TDS but that again is a tedious
process and hence not a viable option.

Confed-ITA, though not involved directly, has assured software dealers in
Chennai that the association is willing to extend full support to the dealers in
the region. Karthikeyan S, President, Confed-ITA stated, “Though Confed-ITA does
not have Microsoft volume license partners on board but the association will
extend support to software dealers in the region if required.”

Legal recourse

Mumbai-based Trade Association of IT (TAIT) has gone a step further and
already met up with officials at the sales tax department and legal consultants
to resolve the issue. “While we are seeking clarity from the sales tax
department on the VAT front, we are awaiting advice from tax consultants on the
service tax front. Besides this we are also taking up the issue proactively with
Nasscom and Manufacturers' Association for IT (MAIT). However, while some of the
dealers have stopped billing and taking orders others who already have orders in
hand have not stalled the billing but are charging both VAT and service tax on
the software licenses.”

Sunil Gugale, President, Computers and Media Dealers Association (CMDA) Pune
mentioned that they were planning to hold a meeting with members of the
association and will be writing to the concerned government department. “In
addition we are also looking at consulting legal authorities on this matter,”
said Gugale.

Harinder Salwan, CEO, Tricom International, Mumbai and a member of Indian
Software Dealers Association (ISODA) mentioned that they had approached
distributors like Redington, Ingram Micro and Sonata Software. “But the
distributors have shown no interest in the issue and are unwilling to look into
the matter any further. As per a Supreme Court judgment one cannot levy service
tax and VAT on the same component. But the distributors and the vendors are
unwilling to change their standpoint,” shared Salwan.

Apparently, TAIT has also consulted Charted Accountant's Club Mumbai and
taken an opinion from senior tax consultants on the matter. “More than 40
software dealers across the country are supporting the cause and we would be
filing litigation and hiring legal experts and will go to the Supreme Court to
resolve the issue. We want the dual taxation to be abolished completely.”

Stating that the matter had come to his notice only recently, Pawan Jajodia,
President Compass, Kolkata mentioned that Compass has already sent a letter to
the service tax director and are in talks with the Confederation of All India
Trade in New Delhi to clear the confusion. This aside the association will also
be holding a meeting to discuss the matter further.

Hemant Chabaria of Kolkata-based Chabria Infotech and a member of ISODA
stated, “Nearly 43 members from our association are supporting the cause and we
have written letters to both the vendors and the distributors and have informed
them that all billings will be on hold till the issue is sorted out. We have
also asked them to reconsider and revise the targets so that dealers feel less
burdened.”