GST on Software Sub-licensing and Market Support Fees: TN/24/AAR/2023
The Tamil Nadu Authority for Advance Ruling clarified that software sub-licensing is a supply of goods and affects how inter-company fees are taxed.
- Ruling
- Advance Ruling No. 24 /AAR/2023 Dated: 20.06.2023
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Software sub-licensing to end-users is classified as a supply of goods.
- Market Support fees are treated as additional taxable consideration for the supply.
- Payments to related entities must follow Rule 28 for valuation purposes.
In short
The company asked the Tamil Nadu Authority for Advance Ruling (AAR) how to tax software sub-licensing and payments made to its global parent company. The authority decided that because the software is pre-developed and delivered via keys, it is a supply of goods. Furthermore, any extra fees received to guarantee profit margins are part of the taxable value of that supply.
What has changed
How it worked before
Businesses were often uncertain whether software distribution should be classified as a supply of goods or a service, leading to inconsistent tax treatment.
What has changed
The ruling confirms that pre-developed software is a supply of goods. It also mandates that performance-based payments from a parent company must be included in the taxable value of the software supply, and payments to related entities must follow specific valuation rules.
Who this affects
Software distributors and subsidiaries of multinational companies that pay or receive fees for distribution rights or market support.
An example
Imagine a local subsidiary of a foreign software firm that receives 'incentive payments' from its parent to maintain a specific profit margin. Under this ruling, the subsidiary must include those incentive payments in the total value of the software they sell to Indian customers. They cannot treat these payments as separate, non-taxable income. They must also ensure their inter-company fee calculations strictly follow Rule 28 of the CGST Rules.
What you should do
This ruling only applies to the company that asked the question. If your business has a similar arrangement, you should consult a tax professional to see if these principles apply to your specific contracts, as your local tax officer is not legally bound by this decision.
If you do nothing
If you assume this ruling applies to you and calculate your taxes incorrectly, you risk a tax audit and penalties. A tax officer may disagree with your interpretation, leading to demands for unpaid tax, interest, and potential fines for under-reporting.
The terms explained
- Supply of goods
- The transfer of ownership or rights to use physical or digital products, which is taxed differently than providing a service.
- Additional consideration
- Any extra money or benefit received by a seller in connection with a sale, which must be added to the price when calculating GST.
- Related persons
- Entities that are connected through ownership or management, such as a parent company and its subsidiary, which triggers stricter tax valuation rules.
- Rule 28
- A specific regulation under the GST law that dictates how to determine the value of a transaction between related parties.
The ruling in detail
Authority for Advance Ruling
AVEVA Software Private Limited
Advance Ruling No. 24 /AAR/2023 Dated: 20.06.2023 · Tamil Nadu
Questions before the authority
- Whether GST is applicable on sub-licensing of the software by the applicant to end-users in India? If yes, then what shall be the value of supply?
- Whether GST is applicable on the 'Market Support fees' received by the applicant from Central Hub?
- Whether the taxable value for the operating fees paid to Central Hub by the applicant pursuant to the said arrangement shall be determined as per Rule 28 of the Tax Valuation Rules prescribed in CGST Rules 2017?
Facts
The applicant is a subsidiary of AVEVA Group Plc and acts as a non-exclusive distributor for software products in the territory of India, Sri Lanka, Bangladesh, Nepal, and Maldives. Under an Operating Agreement, the applicant sub-licenses software to end-users and receives 'Market Support fees' from the Central Hub if their profit margin falls below a guaranteed level. The applicant also pays an 'Operating fee' to the Central Hub for the distribution rights granted.
Ruling
| Question | What the authority ruled |
|---|---|
| GST applicability on sub-licensing | Taxable as a supply of goods Value is the actual transaction value charged to the end-user |
| GST on Market Support fees | Taxable as additional consideration Forms part of the value of supply under Section 15 of the GST Act |
| Valuation of operating fees paid to Central Hub | Determined as per Rule 28 of the CGST Rules Applicable as the parties are related persons |
The authority ruled that the sub-licensing of software to end-users in India constitutes a supply of goods subject to GST based on the actual transaction value. Market Support fees received from the Central Hub are considered additional consideration for the supply and form part of the taxable value. The taxable value for the operating fees paid to the Central Hub must be determined in accordance with Rule 28 of the CGST Rules.
Reasoning
The authority determined that the software supplied is pre-developed and made available via encryption keys, qualifying it as a supply of goods under the CGST Act. Market Support fees were deemed to be **additional consideration** for the supply, as they are received in relation to the applicant's obligations under the agreement. Regarding the operating fees paid to the Central Hub, the authority held that the parties are **related persons**, necessitating valuation under Rule 28 of the CGST Rules rather than Section 15(1).
Provisions relied on
- Section 7 of the CGST Act
- Section 9 of the CGST Act
- Section 15 of the CGST Act
- Section 2(11) of the IGST Act
- Rule 28 of the CGST Rules 2017
- Notification No. 1/2017-IT (Rate)
- Notification No. 13/2017-CT (Rate)
For the practitioner
This ruling clarifies that sub-licensing of pre-developed software is treated as a **supply of goods** rather than services. It provides a precedent for treating performance-based compensation (Market Support fees) as part of the taxable value of supply. Practitioners should note that the valuation of inter-company payments between related entities for distribution rights must strictly adhere to **Rule 28 of the CGST Rules**.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/24_aar_2023aveva.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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