TaxTMI 
TaxTMI 
1987 (12) TMI 119
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....rvices to be supplied and the charges therefor. When we saw the price-lists, we found that they were stamped with an un-dated approval endorsement by the Assistant Collector. A doubt arose in our mind whether after having approved the price-lists, net of the software and service charges, the Assistant Collector could re-open the assessment on his own. The learned representative of the department then explained that the sequence of events was not so. He stated that as soon as the respondents filed the price lists, the valuation dispute started. Then the Assistant Collector immediately issued a show cause notice proposing to include the charges for the software and the services which were a part of the same consolidated contract. On adjudication, the Assistant Collector relying on the Supreme Court judgment in the case of Bombay Tyres International Limited [1983 E.L.T. 1896 (S.C.)], held that the supply of software and services promoted the marketability of the computers and hence the charges for software and the services could not be excluded from the assessable value of the computer. The respondents went in appeal and the Collector (Appeals) held that supply of software and service....
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....has been further clarified by the Supreme Court in their later judgment in the case of M/s. MRF Limited - [1987 (27) E.L.T. 553 (SC)] according to which all costs incurred for manufacturing and marketing of the goods upto the stage of delivery at the factory gate have been held to be includible while expenses incurred after removal of the goods from the factory gate have been held to be not includible in the assessable value. Reading the two judgments together, it is not possible to say that each and every service activity has no nexus with the manufacture of the goods, their marketability and their delivery at the factory gate. Atleast, two types of service activities come to our mind which have a clear nexus as above. These are :- (a) pre-manufacturing research, planning and designing; these are directly connected with the manufacture of the goods and form a part of the manufacturing cost; (b) activities which may not be necessary for bringing the goods into existence but without which it would not be possible to market the goods at all. Examples of such activities are - (i) advertisement and publicity by the manufacturer to create product awareness and demand for his goods; an....
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....But any goods supplied as a part of the consultancy service would be taxable on their own merits. (2) TRAINING OF THE CUSTOMER'S STAFF : The training may be prior to the delivery of the computer or after it but in either case it can be said to have no nexus with the manufacture or marketability of the computer. However, as already stated in connection with the consultancy service, if any goods are supplied as a part of the training, the goods would be taxable on their own merits. (3) INSTALLATION AND COMMISSIONING OF THE COMPUTER AT THE CUSTOMER'S PREMISES : These are clearly post-removal expenses and this activity has no nexus with manufacturing and marketability of the computer. Their cost is, therefore, not includible in the assessable value of the computer. (4) WARRANTY CHARGES : It is not possible to market any costly machinery article without the manufacturer extending free warranty service for a reasonable period of time. The customer needs a minimum assurance that the machine he is buying would give reliable operation or some reasonable period and, in case of need, the manufacturer would attend to the defect free of cost. The cost of such after-sale-service during the....
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....e us a book titled "COMPUTERS FOR EVERYBODY", 3rd Edition, by Jerry Willis and Meri Miller. This book has been written for a layman's understanding. We reproduce a couple of extract from it to facilitate understanding of what is hardware and software :- "Hardware, the actual computer and its accessories, is only half a computer system. To get it to do anything useful the computer must be given a set of instructions that will it exactly what to do. These instructions are called programs or software and they are at least as important as the nuts and bolts of a system." "A computer is only a dumb box with a bunch of electronics in it. All the talk about the marvelous things computer can do is really only talk about all the marvelous things software can do." (iv) The software may be language or knowledge, no doubt. But it is not passed by word of mouth. It is recorded on a medium such as floppy, cartridge, chip, diskette or documents. These recorded mediums are 'goods' in their own right, just as an education film, a language teaching cassette tape or a music record is. They are bought and sold in the market as a valuable commodity. Their intrinsic value includes the cost of the bla....