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

TATA CONSULTANCY SERVICES Versus STATE OF ANDHRA PRADESH

The SC held that computer software embodied on physical media (floppies, disks, CD-ROMs, tapes, etc.) constitutes 'goods' under Article 366(12) and the ... Levy of tax on sales or purchases of goods - Nature of Computer software - term 'goods' in Section 2(h) - Whether an intellectual property contained in floppies, disks or CD-ROMs would be 'goods' within the meaning of Andhra Pradesh General Sales Tax Act, 1957 ('the Act') is the question involved in this appeal which arises out of a judgment and order dated 12th December, 1996 passed by the Andhra Pradesh High Court. - HELD THAT:- In our view, the term 'goods' as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd.[2001 (1) TMI 248 - SUPREME COURT (LB)]. A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become 'goods'. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of 'goods' within the meaning of the term as defined in the said Act. The term 'all materials, articles and commodities' includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like - floppies, disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained is a marketable commodity. They are visible to senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regard leviability of the tax under a fiscal statute, it may not make a difference. A programme containing instructions in computer language is subject matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware, viz., the computer in an effective manner so as to enable him to obtain the desired results. It indisputably becomes an object of trade and commerce. These mediums containing the intellectual property are not only easily available in the market for a price but are circulated as a commodity in the market. Only because an instruction manual designed to instruct use and installation of the supplier programme is supplied with the software, the same would not necessarily mean that it would cease to be a 'goods'. Such instructions contained in the manual are supplied with several other goods including electronic ones. What is essential for an article to become goods is its marketability. The software marketed by the Appellants is canned software and, thus, would be exigible 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.