http://JUDIS.NIC.IN

SUPREME COURT OF INDIA

Page 1 of 4

CASE NO.:

Appeal (civil) 2582 of 1998

PETITIONER:

TATA CONSULTANCY SERVICES

Vs.

RESPONDENT:

STATE OF ANDHRA PRADESH

DATE OF JUDGMENT: 13/03/2001

BENCH:

S. Rajendra Babu & R.C. Lahoti

JUDGMENT:

(WITH C.A. No. 2583, 2584, 2585 and 2586 of 1998)

J U D G M E N T

RAJENDRA BABU, J. :

L...I...T.......T.......T.......T.......T.......T.......T..J

In these matters the Andhra Pradesh High Court concluded

that software is of two categories - (i) software which is

specialised and exclusively custom-made to cater to the

needs of individual clients, and (ii) software which is

standardised and marketed for the use of certain classes of

clients, like the Oracle, Lotus, Master Key, N-Export, Ex.

Unigraphics, etc. and held that for the purpose of the

Andhra Pradesh General Sales Tax Act (hereinafter referred

to as the Act) it is not necessary to consider whether the

definition of goods in Section 2(h) of the Act has to be

read down so as to exclude software from it. The High Court

took the view that the first category may not constitute

goods for the purpose of the Act, while the second

category are goods and held that they are leviable to tax.

The case advanced on behalf of the appellants is that

the branded software which is an intellectual property being

product of thought, creativity and intellectual efforts

cannot be goods for the purpose of the Act; that it is an

intangible intellectual property and, therefore, cannot be

goods; that software is an essentially classic form of

intellectual property; that the value of the tapes on which

it is sold is much lesser than the value of the software

programme itself; that the software programme is always

transferred onto the hardware and then the tapes are

useless; that, therefore, the licensee/payer is paying for

the programme and not for the tapes or discs; these discs

are different from music cassettes and video tapes, music

reels, etc. because the programme on the discs is separable

and is always transferred to the hardware, whereas in the

case of music cassettes, etc. though they may be separable

and can be transferred to another cassette or tape this is

not generally done and the music or movie always remains on

the tangible property on which it was stored when sold;

that there are other methods by which a software programme

can be installed, like, the programme directly keying in the

http://JUDIS.NIC.IN

SUPREME COURT OF INDIA

Page 2 of 4

programme through the console keyboard; that what is

transferred is the right to use the programme (which is a

set of instructions) and not the tape on which it is stored;

that though software has a physical component, these

physical components are merely tangential incidents of a

computer programme, they do not change the programmes

clearly intangible character; that the essence of the

contract is the right to use the software, therefore, the

essence of the transaction test must be applied; that in

PSI Data Systems Ltd. v. Collector of Central Excise, 1997

(2) SCC 78, it is held that if discs, floppies, CD ROMs are

sold along with the computer, their value is not to be

included for assessing excise duty; that a software

programme is a process that can be used to achieve a certain

result whereas a music cassette etc. is the end product in

itself.

While on behalf of the respondents the case of the

appellants is resisted on the ground that the magnetic

tapes, discs, are necessary to carry the programme and for

the transfer to the hardware and, therefore, the value of

the tapes is equal to the value of the programme; that the

fact that the programme can be transmitted through some

other means does not take away from the fact that in fact a

tangible means was actually used; that m