( Expert )
11 August 2011
Tata Consultancy Services v. State of Andhra Pradesh, (2004) 271 ITR 401 (SC).
The assessee provides consultancy services including computer consultancy services. As a part of their business, they prepare and load on customers’ computers custom-made software (uncanned software) and also sell computer software packages off the shelf (canned software). The canned software packages are of the ownership of companies/persons, who have developed these software. The assessee is a licensee with permission to sub-license the packages to others. The canned software programs are programs like, Oracle, Lotus, Master Key, N-Export, Unigraphics, etc. In respect of the canned software, the Commercial Tax Officer, Hyderabad, passed a provisional order of assessment under the provisions of the Andhra Pradesh General Sales Tax Act, 1947 (‘the Act’) holding that the software were goods and accordingly levied sales tax on this software. The Appellate Deputy Commissioner of Commercial Taxes also held that the software were goods and liable to tax. The appeal of the assessee was dismissed by the Sales Tax Appellate Tribunal, Andhra Pradesh. The tax revision case was dismissed by the Andhra Pradesh High Court. On appeal, the Supreme Court held that the term ‘goods’ for the purposes of sales tax cannot be given a narrow meaning. The properties which are capable of being abstracted, consumed and used and/or transmitted, transferred, delivered, stored, or possessed, etc., are ‘goods’ for the purposes of sales tax. The test to determine whether a property is ‘goods’, for the purposes of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed etc. In the case of software, both canned and uncanned, all of these are possible. A software program may consist of various commands which enable the computer to perform a designated task. The copyright in that program may remain with the originator of the program. 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’. There is no difference between sale of a software program on a CD/floppy disc from sale of music on cassette/CD or 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 is of 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 of sale of computer software was clearly a sale of ‘goods’ within the meaning of the term defined in the Act.