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Sanjiv Agarwal

Is software up-gradation a taxable service under maintenance and repair service?

Aakash Kumar

Finance Bill, 2007 has inserted an explanation to the definition under Section 65(64) and the amended definition is as follows:

Management, maintenance or repair means any service provided by i) any person under a contract or an agreement; or ii) a manufacturer or any person authorised by him, in relation to: (a) management of property, whether immovable or not; (b) maintenance or repair of properties, whether immovable or not; or (c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle.

Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause, `goods' includes computer software. The insertion of explanation to the definition clarifies that `goods' referred to in management, maintenance or repair service includes computer software.

According to CBEC clarification, Section 65(64) has been amended to clarify that "goods" for the purposes of this service include computer software. Consequently, maintenance or repair of computer software will be leviable to service tax under this category.

It may be noted that development of computer software is distinct from maintenance or repair of computer software and development of computer software continues to be not service taxable being an "information technology service".

This amendment, by way of explanation makes the law clear. While software development and up-gradation shall be out of tax net, maintenance or repair thereof shall be a taxable service.

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