Customised software treated as goods for sales tax, while penalty failed for lack of culpable conduct.

Customised software developed and supplied to clients was treated as goods exigible to sales tax under the KGST Act because software, whether customised or canned, has utility and is capable of being bought, sold, transferred, delivered, stored, and possessed; customisation did not alter its character for levy purposes. Penalty was not sustained because the taxability of customised software was in genuine legal flux, and the record did not establish wilful suppression or other contumacious conduct required for penal action. The sales tax assessments were therefore upheld, but the penalty failed.

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Issues: (i) whether customised software developed and supplied to clients is goods exigible to sales tax under the KGST Act; (ii) whether penalty could be sustained in the facts of the case.

Issue (i): whether customised software developed and supplied to clients is goods exigible to sales tax under the KGST Act

Analysis: The applicable entry brought computer software within the sales tax net. The Court held that the principles in Tata Consultancy Services were not confined to canned software and that software, whether customised or non-customised, is goods if it has utility, can be bought and sold, and is capable of being transmitted, transferred, delivered, stored, and possessed. Customisation for a particular customer did not alter the character of the software as goods for levy purposes.

Conclusion: The issue was answered in favour of the Revenue and against the assessee.

Issue (ii): whether penalty could be sustained in the facts of the case

Analysis: The Court found that the taxability of customised software was then in a state of flux and that there had been genuine uncertainty in the trade and litigation history on the question. Penalty under a taxing statute is attracted for contumacious conduct such as wilful suppression or similar culpable evasion, and such conduct was not established on these facts.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The revisions were allowed to the extent of upholding the sales tax assessments on customised software, while the penalty revisions failed.

Ratio Decidendi: Software is goods for sales tax purposes if it is marketable, has utility, and is capable of being bought, sold, transferred, delivered, stored, and possessed, and penalty in tax matters requires proof of culpable conduct beyond bona fide legal uncertainty.

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