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May 3, 2023

Software purchased and sold on CDs is considered to be a good: SC

Software purchased and sold on CDs is considered to be a good: SC

Fact and issue of the case

These Appeals are against the Judgment dated 12th December, 1996 of the Andhra Pradesh High Court. The Appeals have been placed before this Bench pursuant to an Order of this Court dated 16th January, 2002

Briefly stated the facts are as follows :

The Appellants provide consultancy services including Computer Consultancy Services. As part of their business they prepare and load on customers’ computers custom made software (for sake of convenience hereinafter referred to as ‘uncanned software’) and also sell Computer Software Packages off the shelf (hereinafter referred to as ‘canned software’). The canned Software Packages are of the ownership of companies/persons, who have developed those software. The Appellants are licensees with permission to sub-licence these packages to others. The canned software programmes are pragrammes 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, 1957 [hereinafter called ‘the said Act’] holding that the software were goods. The Commercial Tax Officer 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. However, the matter was remanded back for purposes of working out the tax

The further Appeal, filed by the Appellants, before the Sales Tax Appellate Tribunal, Andhra Pradesh, was dismissed on 1st April, 1996. The Appellants then filed a Tax Revision Case in the Andhra Pradesh High Court, which has been dismissed by impugned Judgment dated 12th December, 1996

Observation of the court

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. At this stage it must be mentioned that Mr. Sorabjee had pointed out that the High Court has, in the impugned Judgment, held as follows

In our view a correct statement would be that all intellectual properties may not be ‘goods’ and therefore branded software with which we are concerned here cannot be said to fall outside the purview of ‘goods’ merely because it is intellectual property; so far as ‘unbranded software’ is concerned, it is undoubtedly intellectual property but may perhaps be outside the ambit of ‘goods [emphasis supplied]

Mr. Sorabjee submitted that the High Court correctly held that unbranded software was “undoubtedly intellectual property”. Mr. Sorabjee submitted that the High Court fell in error in making a distinction between branded and unbranded software and erred in holding that branded software was “goods”. We are in agreement with Mr. Sorabjee when he contends that there is no distinction between branded and unbranded software. However, we find no error in the High Court holding that branded software is goods. In both cases, the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed etc. Thus even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this aspect and express no opinion thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is a service contract may arise

Before concluding, it must be mentioned that before the High Court certain other questions were also raised. However, those have not been agitated or pressed before us

In this view of the matter, we see no infirmity in the Judgment of the authorities below or in the impugned Judgment. Accordingly, the Appeals shall stand dismissed with no order as to costs


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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