2004 (11) TMI 11 - SC - VAT / Sales Tax

Computer software fixed on physical media is 'goods' under Article 366(12) and taxable under the General Sales Tax Act

The SC held that computer software embodied on physical media (floppies, disks, CD-ROMs, tapes, etc.) constitutes 'goods' under Article 366(12) and the ... Goods - sale - intellectual property embodied on a tangible medium - marketability as determinant of goods - capability of being transmitted, transferred, delivered, stored and possessed - severability doctrineGoods - intellectual property embodied on a tangible medium - marketability as determinant of goods - capability of being transmitted, transferred, delivered, stored and possessed - severability doctrine - Whether sale of canned computer software constitutes sale of 'goods' under the Andhra Pradesh General Sales Tax Act, 1957 - HELD THAT: - The Court held that the definition of 'goods' in the Act (read with Article 366(12)) is wide and is not confined to tangible corporeal articles; it embraces movable property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored and possessed. Intellectual content when incorporated on a medium (floppies, disks, CD-ROMs, tapes, hard drives, etc.) and marketed acquires marketability and becomes the subject-matter of trade. The Court rejected a narrow approach that would treat software merely as intangible information immune from sales tax: precedent treating electricity and intellectual material on media as 'goods' (including Associated Cement Companies and decisions on electricity) supports the conclusion that intellectual input embodied in a tangible medium is taxable as goods. The Court noted and distinguished foreign authorities holding the program itself to be intangible, and observed that Indian statutory definitions and purposive/literal construction require treating canned software marketed on physical media as goods. The Court also declined to accept any distinction of substance between 'branded' and 'unbranded' software for the purposes of being goods, observing that where software is marketed it meets the attributes of goods; questions peculiar to unbranded/customized software (such as situs or service-versus-goods) were not decided. The determinative ratio is that software, when marketed in a medium and satisfying the attributes of marketability and transferability, falls within the statutory concept of 'goods' and is exigible to sales tax. [Paras 24, 71, 73, 74, 75]Canned computer software sold by the appellant is 'goods' within the meaning of the Andhra Pradesh General Sales Tax Act, 1957, and is assessable to sales tax.Final Conclusion: The appeals are dismissed; the sale of canned software marketed on tangible media is 'goods' under the Act and liable to sales tax. Issues Involved:1. Whether canned software sold by the appellants can be termed as 'goods' and assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957.2. Interpretation of the term 'goods' under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957.3. Applicability of sales tax to intellectual property contained in physical media.4. Distinction between tangible and intangible property in the context of sales tax.Issue-Wise Detailed Analysis:1. Whether canned software sold by the appellants can be termed as 'goods' and assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957:The Supreme Court examined whether canned software sold by the appellants qualifies as 'goods' under the Andhra Pradesh General Sales Tax Act, 1957. The Commercial Tax Officer, Hyderabad, had initially held that the software were goods and levied sales tax, a decision upheld by the Appellate Deputy Commissioner and the Sales Tax Appellate Tribunal. The Andhra Pradesh High Court also dismissed the appellants' challenge.2. Interpretation of the term 'goods' under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957:Section 2(h) of the Act defines 'goods' as all kinds of movable property except actionable claims, stocks, shares, and securities, including materials, articles, and commodities. The Court noted that the term 'goods' includes both tangible and intangible properties, provided they are capable of being abstracted, consumed, used, transmitted, transferred, delivered, stored, or possessed. The definition is broad and encompasses various forms of movable property.3. Applicability of sales tax to intellectual property contained in physical media:The Court held that intellectual property, once put on a media such as books, canvases, computer discs, or cassettes, and marketed, becomes 'goods' susceptible to sales tax. The Court emphasized that the sale is not just of the media but the intellectual property embedded within it, which cannot be separated from the media. The software and the media are inseparable, and what the buyer purchases is the intellectual property.4. Distinction between tangible and intangible property in the context of sales tax:The Court rejected the argument that software is intangible and thus not subject to sales tax. It referred to several cases, including the Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, where electricity was considered 'goods' despite being intangible. The Court emphasized that the test for determining whether an item is 'goods' includes its capability of abstraction, consumption, use, transmission, transfer, delivery, storage, and possession. Software, whether canned or uncanned, meets these criteria.Conclusion:The Court concluded that both branded and unbranded software, when marketed or sold, qualify as 'goods' under the Andhra Pradesh General Sales Tax Act, 1957. The software's nature as intellectual property does not exempt it from being classified as goods. The Court dismissed the appeals, affirming the decisions of the lower authorities and the Andhra Pradesh High Court. The judgment clarified that the term 'goods' includes both tangible and intangible properties capable of being abstracted, consumed, used, transmitted, transferred, delivered, stored, or possessed.