H. L. DATTU, C.J. –

In all these sales tax revisions, the one and only question that arises for our consideration and decision is, whether the royalty income received by the assessee from the franchisees for the use of the trade mark is exigible to tax under the Kerala General Sales Tax Act, 1963 ("the KGST Act", for short) in the hands of the assessee. The other question is whether, in the facts and circumstances of the present case, can it be said that there exists the concept of "goods", "turnover" and "taxable turnover" with reference to the receipt of royalty by the assessee from its franchisees ?

The questions of law raised by the assessee in these revision petitions are no more debatable in view of what has been stated by this Court in the case of Mechanical Assembly Systems (India) Pvt. Ltd. v. State of Kerala [2006] 144 STC 536. In the said decision, the court was pleased to observe as under :

"The traditional meaning of the word 'goods' has undergone radical change due to technological and scientific developments. Reference may also be made to a recent decision of the apex Court in Tata Consultancy Services v. State of Andhra Pradesh [2004] 137 STC 620; [2005] 13 KTR 1, wherein the apex Court examined the Constitutional definition of the word 'goods' and held that it includes all materials, articles and commodities both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. Court held, software programmes contain all these characteristics. It is relevant to refer to the dictum laid down by the Supreme Court which is extracted below :

'In our view, the term "goods" as used in article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this court in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); [2001] 4 SCC 593. 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 of 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'."

Similar issue came up for consideration before the Bombay High Court in the case of Commissioner of Sales Tax v. Duke & Sons Pvt. Ltd. [1999] 112 STC 370 and the Madras High Court in the case of S.P.S. Jayam and Co. v. Registrar, Tamil Nadu Taxation Special Tribunal [2004] 137 STC 117.

In Duke & Sons's case [1999] 112 STC 370, the learned Judges of the Bombay High Court have held as under :

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