Assessable value of computers excludes full software licence value when application software is loaded before clearance

Operational or application software loaded on computers before clearance was treated as includible in assessable value only to the extent of the loading cost where no separate tangible media was supplied; the full licence fee or full value attributable to the right to use the software could not be added to the computer's assessable value. Software supplied separately on tangible media was outside the computer's value for central excise purposes. The article explains that transaction value did not justify treating such software as an accessory forming part of the computer, so demands based on inclusion of the entire software value and the connected penalties could not survive.

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Issues: Whether the value of operational/application software loaded on computers before clearance from the factory was includible in the assessable value or transaction value of the computers for central excise duty.

Analysis: The software in dispute was operational/application software and not motherboard firmware or BIOS. The legal position applied depended on the manner of clearance: where software was supplied separately on tangible media, its value could not be included in the computer's assessable value; where software was merely loaded before clearance without separate supply of tangible media, only the cost of loading could be considered, not the full licence fee or full value attributable to the right to use the software. The substituted concept of transaction value did not justify loading the full value of such software as if it were an accessory forming part of the computer. Since the demands were founded on inclusion of the entire value of the software, the demand and consequential penalties could not stand.

Conclusion: The inclusion of the full value of operational/application software in the assessable value of the computers was held to be impermissible, and the assessee succeeded.

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