IMPORTANT POINT
Canned Software being goods would be exigible to sales tax under the provisions of the Andhra Pradesh General Sales Tax Act.

Headnote:Andhra Pradesh General Sales Tax Act, 1957-Sections 2(h), 2(n) and 5-Computer Softwares-Levy of sales tax-Validity challenged-Appellants provide Computer Consultancy Services and as part of their business they prepare and load on customers computers custom made software (uncanned software) and also sell Computer Software Pakages off the shelf as canned software-Canned Software Packages are of the ownership of companies/persons, who have developed those software-Canned software programmes are like Oracle, Lotus, Master Key, N Export, Unigraphics, etc.-Order of Assessment passed by Commercial Tax Officer holding that software were goods, liable to tax-Whether the canned software sold by appellants can be termed to be goods and as such assessable to sales tax under the Act-(Yes)-A transaction sale of computer software is clearly a sale of goods within the meaning of the term as defined in the Act.
       S.N. Variava, J. [For N. Santosh Hegde, B.P. Singh, H.K. Sema, JJ. and for himself]
       Held : A software programme may consist of various commands which enable the computer to perform a designated task. 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. (Para 24)
       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. (Para 26)
       Per S.B. Sinha, J. [Concurring Judgment]
       A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like - floppies, disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained is a marketable commodity. They are visible to senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regard leviability of the tax under a fiscal statute, it may not make a difference. A programme containing instructions in computer language is subject matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware, viz., the computer in an effective manner so as to enable him to obtain the desired results. It indisputably becomes an object of trade and commerce. These mediums containing the intellectual property are not only easily available in the market for a price but are circulated as a commodity in the market. Only because an instruction manual designed to instruct use and installation of the supplier programme is supplied with the software, the same would not necessarily mean that it would cease to be a goods . Such instructions contained in the manual are supplied with several other goods including electronic ones. What is essential for an article to become goods is its marketability. (Para 72)
       The software marketed by the Appellants herein indisputably is canned software and, thus, as would appear from the discussions made hereinbefore, would be exigible to sales tax. It is not in dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A goods may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability. (Paras 74 and 75)

JUDGMENT

S.N. Variava, J.-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.

2. 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 programmes like Oracle, Lotus, Master Key, N-Export, Unigraphics, etc.

3. 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.

4. 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.

5. The question raised in this Appeal is whether the canned software sold by the Appellants can be termed to be "goods" and as such assessable to sales tax under the said Act.

6. To consider this question, it is necessary to first look at the relevant provisions.

Section 2(h) of the said Act reads as follows:

"2(h) `goods means all kinds of movable property other than actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including the goods (as goods or in some other form), involved in the execution of a works contract or those goods used or to be used in the construction, fitting out, improvement or repair of movable or immovable property and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale and also includes motor spirit."

"Sale" is defined in Section 2(n) as follows:

"2(n) `Sale with all its grammatical variations and cognate expressions means every transfer of the property in goods whether as such goods or in any other form in pursuance of a contract or otherwise by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods.

Explanation I : A delivery of goods on the hire purchase or any system of payment by instalments shall, notwithstanding the fact that the seller retains the title in the goods, as security for payment of the price, be deemed to be a sale.

Explanation II : (a) Notwithstanding anything contained in the Indian Sale of Goods Act, 1930 (Central Act III of 1930) a sale or purchase of goods shall be deemed, for the purpose of this Act to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State.

(i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and

(ii) in the case of unascertained or future goods, at the t

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2004 Supreme(SC) 1410

IMPORTANT POINTCanned Software being goods would be exigible to sales tax under the provisions of the Andhra Pradesh General Sales Tax Act.

Cases Referred (23)

IMPORTANT POINT
Canned Software being goods would be exigible to sales tax under the provisions of the Andhra Pradesh General Sales Tax Act.