Holding

Software embodied on a medium and sold as a commodity is a "good" within the meaning of the Andhra Pradesh General Sales Tax Act, 1957 and is therefore assessable to sales tax.

Summary

Tata Consultancy Services (TCS) sold canned computer software packages and was assessed sales tax by the Andhra Pradesh Commercial Tax Officer, who held that the software constituted "goods" under the Andhra Pradesh General Sales Tax Act, 1957. TCS appealed, arguing that software is intangible intellectual property and not movable property within the definition of goods. The Supreme Court examined the statutory definition of "goods" in Article 366(12) of the Constitution and Section 2(h) of the Act, emphasizing a functional test: whether the item can be abstracted, consumed, used, transmitted, transferred, stored or possessed. The Court held that once software is embodied on a medium (CD, floppy, etc.) and marketed, it becomes a movable commodity and therefore falls within the definition of goods, irrespective of its intangible nature. Consequently, the sale of both branded and unbranded (canned) software is liable to sales tax. The Court dismissed the appeals, upholding the tax assessment.

Issues considered

The meaning of "goods" under Article 366(12) of the Constitution and Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957.
Whether computer software, an intellectual property, qualifies as "goods" for sales tax purposes.
Whether there is a distinction between branded (canned) and unbranded software in taxability.
Interpretation of the term "sale" under Section 2(n) of the Act in relation to software transactions.

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 2(h), s. 2(n), s. 5
Constitution of Indias. Article 366(12)
Customs Acts. 2(22)
Sale of Goods Act, 1930

Subjects

sales taxgoods definitioncomputer softwareintellectual propertytaxability of softwarecanned softwareunbranded softwarestatutory interpretationArticle 366(12)Andhra Pradesh Sales Tax Act

Judgment

A TATA CONSULTANCY SERVICES
v.
STATE OF ANDHRA PRADESH

NOVEMBER 5, 2004

B [N. SANTOSH HEGDE, S.N. VARIA VA, B.P. SINGH, H.K. SEMA AND
S.B. SINHA, JJ.]

Andhra Pradesh Sales Tax Act, 1957-Section 2(h) and (n) and section
C 5-Computer Software Packages-If 'goods' and assessable to Sales Tax-
Held: Computer Software is intellectual corporeal property-Once intellectual
property is put on to a media, in the form of books or canvas or computer
discs or cassettes, and is marketed, it would become 'goods '-Sale is not of
the media which has very little value-Software and the media cannot be split
up-Buyer purchases and pays for the intellectual property and not the media- ,
D Furthermore, software programmes, canned and uncanned are capable of
abstraction, consumption and use and which can be transmitted, transferred,
delivered, stored and possessed-Hence, transaction sale ofcomputer software
is sale of 'goods' within the meaning of the term 'goods' defined in the Act
and as such assessable to Sales Tax.

E Sales Tax: Term 'goods '-Scope of-Held: Term 'goods' is very wide
and includes all types of movable properties, tangible or intangible-Test to
determine whether a property is 'goods', for levy of Sales Tax is whether the
concerned item is capable of abstraction, consumption and use and whether
it can be transmitted, transferred, delivered, stored, possessed-It is noi whether
F the property is tangible or intangible or incorporeal-Andhra Pradesh Sales
Tax Act, 1957-Section 2(h)-Constitution of India, 1950-Article 366(12).

Words and Phrases:

'Goods '-Meaning of in the context ofArticle 366(12) ofthe Constitution
G of India and section 2(h) Andhra Pradesh General Sales Tax Act, 1957.
The question which arose for consideration was whether the canned
software - Computer Software Packages sold by the appellant-Computer
Consultancy can be termed to be 'goods' and as such assessable to Sales

H 1040
TATA CONSULTANCY SERVICES v. STATE OF A.P. 1041

/
~ Tax under the Andhra Pradesh General Sales Tax Act, 1957. A
Dismissing the appeals, the Court

HELD: Per S.N. Variava, J (for himself and N. Santosh Hegde J, B.P.
Singh J and, H.K. Serna J)
B
1.1. The term "goods" as used in Article 366 (12) of the Constitution
of India and as defined under the Andhra Pradesh General Sales Tax Act,
1957 is very wide and includes all types of movable properties, whether
those properties be tangible or intangible. In India, the test to determine
whether a property is 'goods', for purposes of sales tax, is not whether
the property is tangible or intangible or incorporeal. The test is whether c
the concerned item is capable of abstraction, consumption and use and
whether it can be transmitted, transferred, delivered, stored, possessed etc.
(1064-B, F)

1.2. Computer Software is intellectual corporeal property.
D
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'. A.software programme may consist
of various commands which enable the computer to f>erform 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 E
becomes goods, which are susceptible to sales tax. There is 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
F
little value. The software and the media cannot be split up. The buyer
purchases and pays for intellectual property and not the me.dia-the disc
or the CD. Furthermore, software programmes, both canned and
uncanned are capable of abstraction, consumption and use and which can
be transmitted, transferred, delivered, stored, possessed etc. Thus, a
transaction of sale of computer software is clearly a sale of 'goods' within G
the meaning of the term as defined in the Act. (1064-C, D, E; 1065-C)

Commissioner ofSales Tax, Madhya Pradesh, Indore v. Madhya Pradesh
Electricity Board, Jabalpur (196911 SCC 200; Associated Cement Companies
Ltd. v. Commissioner of Customs, (20011 4 SCC 593 and State of A.P. v.
-(
National Thermal Power Corpn. ltd. and Ors., (2002) 5 SCC 203, relied on. H
1042 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A H. Anraj v. Government of Tamil Nadu, (1986) 1 SCC 414; M P.
Cement Manufacturers' Association v. State of M P. and Ors., (2004) 2 SCC
249 and Commissioner of Central Excise, Pondicherry v. Mis Acer India Ltd,
JT (2004) 8 SC 53, referred to.

St. Albans City and District Council v. International Computers, (1996)
B 4 All ER 481; Commerce Union Bank v. Tidwell, 538 S.W.2d 405; Stale of
Alabama v. Central Computer Services, INC 349 So. 2d 1156; The First
National Bank of Fort Worth v. Bob Bullock, 584 S.W. 2d 548; First National
BankofSpringfieldv. Department of Revenue, 421NE2d 175; Compuserve, rI
INC. v. Lindley, 535 N.E. 2d 360; Northeast Datacom, Inc., et al v. City of
C Wallingford, 563 A2d 688; South Central Bell Telephone Co. v. Sidney J.
Barthelemy 643 So.2d 1240; Comptroller of the Treasury v. Equitable Trust
Company, 464 A.2d 248; Chittenden Trust Co. v. Commissioner of Taxes, 465
A.2d 1100; University Computing Company v. Commissioner of Revenue for
the State of Tennessee, 677 S.W.2d 445 and Hasbro Industries, INC. v. John
H. Norberg, Tax Administrator, 487 A.2d 124, referred to.
D
The Law Relating to Computers and the Internet by Rahul Matthan;
Software Engineering by Roger S. Pressman, referred to.

1.3. There is no distinction between branded and unbranded
software. In both cases, the software is capable of being abstracted,
E consumed and use and can ~e transmitted, transferred, delivered, stored,
possessed etc. Thus, even unbranded software, when it is marketed/sold,
may be goods. (1065-B-C)

Per S.B. Sinha, J. (Concurring):
F 1.1. The term 'goods' had been defined in the Andhra Pradesh
General Sales Tax Act, 1957 as also in Clause (12) of Article 366 of the
Omstitution to include all materials, commodities and articles. Commodity
is an expression of wide connotation and includes every thing of use or
value which can be an object of trade and commerce. The amplitude of
G the said expression is required to be considered. The expression 'goods'
is not a term of art. Its meaning varies from statute to statute. (1065-H)

Jagir Singh and Ors. v. State of Bihar and Anr., etc. AIR (1976) SC
997, referred to.

H
__.
TATA CONSULTANCY SERVICES v. STATE OF A.P. 1043

~ Words and Phrases, Volume (7A, Permanent Edn p 590, referred to. A
1.2. The definition of 'goods' in Sales of Goods Act is also of wide
import which means every kind of movable property. Property has been
defined therein to mean the general property in goods and not merely a
special property. The term 'goods' would comprehend tangible and
intangible properties, materials, commodities and articles and also B
corporeal and incorporeal materials, articles and commodities and if a
distinction is sought to be made, the definition of goods will have to be
rewritten of comprising tangible goods only which is impermissible. In the
Constitution, 'goods' as such is not defined. An expansive definition with
the said expression has been given which is indicated by the expression
"includes". Such an expression is also of wide amplitude. When the word
c
'includes' is used in an interpretation clause, it must be construed as
comprehending not only such things as they signify according to their
nature and import but also those things which the interpretation clause
declares that they shall include. [1066-H; 1067-A-B-C-D]
D
Pradeep Kumar Biswas v. Indian Institute of Chemical Biology, [2002]
5 SCC 111 and Scientific Engineering House Pvt. Ltd. v. Commissioner of
Income-tax, Andhra Pradesh [1986] 1 SCC 11, relied on.

2.1. In interpreting an expression used in a legal sense, the courts
are required to ascertain the precise connotation which it possesses in law. E
It is furthermore trite that a court should not be over zealous in searching
ambiguities or obscurities in words which are plain. It is now well-settled
that when an expression is capable of more than one meaning, the Court
would attempt to resolve that ambiguity in a manner consist.ent with the
purpose of the provisions and with regard to the consequences of the F
alternative constructions. [1076-F-H; 1077-A]

Indian Handicrafts Emporium and Ors v. Union of India and Ors.,
[2003] 7 SCC 589 and Ramesh Mehta v. Sanwal Chand Singhvi and Ors.,
JT (2004) Supp. 1 SC 274, relied on.
G
Inland Revenue Commissioner v. Rossminster Ltd, (1980) 1 All ER 80;
Clark and Toke/ey Ltd. (t/a Spellbrook) v. Oakes, (1998) 4 All ER 353 and
In Inland Revenue Commissioners v. Trustees of Sir John Aird's Settlement,
(1984) Ch. 382, referred to.
......... H
1044 SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.

A "Statutory Interpretation "by Francis Bennion pp.368-369, referred to.

2.2. A statute ordinarily must be literally construed. Such a literal
construction would not be denied only because the consequence to comply
the same may lead to a penalty. Proceeding on the basis that there existed
a dichotomy, the Court ultimately held that the resolution will have to be
B reached by reading the entire statute as a whole. ;[1077-H; 1078-AJ

Indian Handicrafts Emporium and Ors. v. Union of India and Ors.,
[2003] 7 SCC 589; Reema Aggarwal v. Anupam and Ors., [2004) 3 SCC 199;
Bairam Kumawat v. Union ofIndia and Ors., [2003) 7 SCC 628 and Swedish
C Match AB and Anr. v. Securities and Exchange Board, India & Anr., (2004)
7 SCALE 158, relied on.

2.3. So long natural meaning for the charging section is adhered to
and when the law is certain, then a strange meaning thereto should not
be given. (1078-FJ
D
Indian Banks' Association, Bombay and Ors. v. Mis. Devkala
Consultancy Services and Ors. JT (2004) 4 SC 587, relied on.

2.4. In absence of incorporation or reference, it is trite that it is not
permissible to interpret a word in accordance with its definition in other
E statute and more so when the same is not dealing with any cognate subject.
Copyright Act and the Sales Tax Act are also not statutes in pari materia
and as such the definition contained in the former should not be applied
in the latter. [1067-E-F)

State of Kera/av. Mathai Verghese and Ors., [1986) 4 SCC 746 and
F Feroze N. Dotivala v. P.M Wadhwani and Ors., (2003) 1 SCC 433 and
Jagatram Ahuja v. Commr. of Gift-tax, Hyderabad AIR (2000) SC 3195,
relied on.

2.4. Although normally a taxing statute is to be strictly construed
G but when the statutory provision is reasonable akin to only one meaning,
the principles of strict construction may not be adhered to. In a fiscal
statute plain meaning rule is applied. {1078-G)

Commnr. ofCentral Excise, Pondicherry v. Mis. ACER India Ltd., (2004)
8 SCALE 169, relied on. ·
H
TATA CONSULTANCY SERVICES v. STATE OF A.P. 1045

""· Partington v. Attorney-General, (1869) LR 4 HL 100, referred to, A
3.1. 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 B
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
c
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 D
of the supplier programme is supplied with the software, the same would
not necessarily mean that it would cease to be 'goods'. Such instructions
contained in the manual are supplied with several other goods including
electronic ones. [1078-H; 1079-A-DI

·. 3.2. A Software programme would become goods provided it has the E
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 has also not gone into the question of F
severability. [1080-A-B-C)

Associated Cement Companies Ltd v. Commissioner ofCustoms, [20011
4 SCC 593; H. Anraj v. Government of T.N. (19861 1 SCC 414; Sunrise
Associates v. NCT of Delhi, (2000) 10 SCC 420 and Commnr. of Central
Excise, Pondicherry v. Mis. ACER India Ltd, 2004 (8) SCALE 169, referred G
to.

Pont Data Australia Pty Ltd v. ASX Operations Pty Ltd and Anr., (1990)
93 Australian Law Reports 523; ASX Operations Pty Ltd and Australian
" Stock Exchange Ltd and Pont Data Australia Pty Ltd FED No. 710 Trade
H
1046 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A Practices (1991) ATPR para 41-069 97 ALR 513/19 IPR 323 27 FCR 460; ·if:'

Advent Systems Ltd v. Unisys Corpn, 925 F. 2d 670 (3rd Cir. 1991); Colonial
Life Insurance Co. v. Electronic Data Systems Corp., 817 F. Supp. 235; First
National Bank of Springfield v. Department of Re'!enue, 421 N.F. 2d 175 85
•,
1112d 84, 421 NE2d 175; Comptroller of the Treasury v. Equitable Trust
Company, 464 A.2d 248; Commerce Union Bank v. Tidwell, 538;*
B Compuserve, INC v. Lingley 535 N.E. 2d 360; Northeast Datacom, Inc. et al.
v. City of Wallingford, 212 Conn.639, 563 A2d 688; South Central Bell
Telephone Co. v. Sidney J. Barthelemny, et al. 643 So. 2d 1240: 36 A.L.R.
5th 689; St. Albans City and District Council v. International Computers,
(1996) (4) All ER 481; STATE-CASE APP·CT, OH-TAXRPTR 402·978
c Ohio Board of Tax Appeals, Aeroquip Cop p 9 of 12, referred to.

Computer Software or Printout Transactions as subject to State Sales
or use Tax by Linda A. Sharp, J.D. 36 ALR 5th 33,_referred to.

4. The court cannot rewrite the provisions of law which clearly is
D the function of the Legislature which interprets them. If a canned software
otherwise is 'goods', the Court cannot say it is not because it is an.
intellectual property which would tantamount to rewriting the judgment.
(1080-DJ

Madan Lal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd
E (1962) Suppl. 3 SCR 973, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2582 of
1998.

From the Judgment and Order .dated 12.12.96 of the Andhra Pradesh
F High Court in T.R.C. No. 99 of I 996.
WITH
C.A. Nos. 2584, 2585 and 2586 of 1998.

Mohan Parasaran, Additional Solicitor General, Soli J. Sorabjee,
G G.S.Jetley, Rakesh Dwivedi, Gopal Jain, Sanjeev Sen, Mrs. Manik
Karanjawala, Ms. Nandini Gore, Ms. Reetu Sharma, Ms. Pragya Bhagel,
A.K. Prasad, R.N. Karanjawala, Pradeep S. Jetly, Ajit S. Bhasme, Jay Kishor
Singh, Rajesh Kumar, Ms. Niranjana Singh, Abhishek Choudhary, Manoj ·
Saxena, Gourav Bhatia, Gaurav Dhama, Adarsh Upadhyay, Mrs. Vim la Sinha,
I\..
H Mohan Prasad Mehria, A. Subba Rao, K. Swamy, B. Krishna Prasad, Atul Y.
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA,J.)1047

Chitale, Pallav Sisodia, Ray Vikram Nath and Mrs. Suchitra Atul Chitale A
with them for the appearing parties.

The Judgment of the Court was delivered by

S.N. VARIA VA, J. These Appeals are against the Judgment dated 12th
December, 1996 of the Andhra Pradesh High Court. The Appeals have been B
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 C
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 D
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.

In respect of the canned software the Commercial Tax Officer,
Hyderabad, passed a provisional Order of Assessment under the provisions E
of the Andhra Pradesh General 8ales Tax Act, 1957 [hereinafter called 'the
said Act'] holding that the software were goods. The Commercial Tax C'fficer
accordingly levied sales tax on this software. The Appellate Deputy
Commissioner of Com.nercial Taxes also held that the software were goods
and liable to tax. However, the matter was remanded back for purposes of F
working out the tax.

The further Appeal, filed by the Appellants, before the Sales Tax
Appellate Tribunal, Andhra Pradesh, was dismissed on I st 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, G
1996.

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.
H
1048 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A 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
B 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
c 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
D
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
E 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
F 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
G 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 time of their
H
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA,J.] 1049
'~,

appropriation to the contract of sale or purchase by the seller or by A
the purchaser, whether the assent of the other party is prior or
subsequent to such appropriation.

(b) Where there is a single contract of sale or purcha~e of goods
situated at more places than one, the provisions of clause (a) shall
apply as if there were separate contracts in respect of the goods at B
each of such places.

Explanation III : Notwithstanding anything contained in this Act or
in the Indian Sale of Goods Act, 1930 (Central Act III of 1930), two
independent sales or purchases shall for the purposes of this Act, be
deemed to have taken place. c
( l) When the goods are transferred from a principal to his selling
agent and from the selling agent to his purchaser, or

(2) When the goods are transferred from the seller to a buying agent
and from the buying agent to his principal, if the agent is found in D
either of the cases aforesaid,-

(i) to have sold the gooJs at one rate and to have passed on the sale
proceeds to his principal at another rate; or

(ii) to have purchased the goods at one rate and to have passed them E
on to his principal at another rate; or

(iii)not to have accounted to his principal for the entire collections or
deductions made by him, in the sales or purchases effected by him o.n
behalf of his principal; or
F
(iv)to have acted for a fictitious or non-existent principal.

Explanation IV : A transfer of right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred payment or
other valuable consideration shall be deemed to be a sale."
G
Section 5 provides as follows:

"5. levy of tax on sales or purchases of goods
"
(l) Save as otherwise provided in this Act, every dealer shall pay a
H
1050 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.
•{/
A tax under this Act for each year on every rupee of his turnover of
sales or purchases of goods in each year irrespective of the quantum
of his turnover at the rate of tax and at the points of levy specified
in the Schedules.

(2) For the purpose of this section and other provisions of this Act,
B the turnover which a dealer shall be liable to pay tax shall be
determined after making such deductions from his total turnover, and
in such manner as may be prescribed.

(3) The taxes under this section shall be assessed, levied and collected
in such manner, as may be prescribed:
c
PROVIDED that

(i) in respect of the same transaction, the buyer or the seller but not
both, as determined by such rules as may be prescribed, shall be
taxed;
D
(ii) Where a dealer has been taxed in respect of the. purchase of any
goods, in accordance with the rules referred to in clause (i) of this
proviso, he shall not be taxed again in respect of any sale .of such
goods effected by him."
E Mr. Sorabjee submitted that the term "goods" in Section 2(h) only
includes tangible moveable property and the words "all materials, articles
and commodities" also cover only tangible moveable property. He submitted
that computer software is not tangible moveable property. In support of his
submission, he relied upon certain observations in the book "The Law Relating
F to Computers and the Internet" by one Mr. Rahul Matthan, wherein it has
been stated that a software program is essentially a series of commands
issued to the hardware of the computer that enables the computer to perform
in a particular manner. It is stated that to make it effective, therefore, the
sequence of commands must be physically stored on a portion of the computer
that can be readily accessed by the· processing unit of the computer. It is
G stated that \n order for this, the programs should be reduced to a physical
form so that it is capable of being stored. It is stated that the programs are
therefore of a nature that they may be recorded on magnetic media (much
like the recording of audio or video on cassettes and tapes) but that in cases
of software, the programmes are recorded on floppy drives, CDs or hard (
H drives. In the book, the nature of software' is defined as follows:
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA,J.]1051

"The Nature of Software A
What then, is the software program? If a person goes to a store to
purchase an item of software, he will most likely be given a box
containing a series of floppy discs or a single CD-ROM and some
instructional material. Within the floppy discs or the CD-ROM will
be all the components of the program that one requires· to copy (for B
install) onto the hard disc of the computer, in order that the program
can function.

So is the CD-ROM that you have purchased, the software? If the
answer to that question is yes, the corollary would be that the CD- C
ROM containing the software program, becomes the sale and exclusive

- property of the person who bought it and can be sold or distributed
fully. If you purchase a soap, you become the sole owner of that soap
and you could re-sell it, cut it into pieces and distribute it or, unhygienic
though it may sound, even hire it out to various people to use - and
no one could challenge your actions since you have paid valuable D
consideration and purchased the product and thereby have accrued
the sole right to deal with that item. If that applies to the soap, why
could it not apply to the CD-ROM?

The answer to that question lies in understanding the basic
difference between a software program and other traditional goods. E
As already discussed, software is a series of instructions. While it
may be housed in a floppy disc or a CD-ROM or the hard disc of the
computer, the item referred to as software is the series of commands
that operates the computer. Though the floppy disc, the CD-ROM
and the hard disc are each tangible commodities that could be bought F
sold and resold, the software embedded in these media are intangible
and fall into a very different category."

Mr. Sorabjee also relied upon a book "Software Engineering" by Roger
S. Pressman, wherein it has been stated that a Software is an instruction that
when executed provides desired function.and performances. It is stated that G
a SoftWare is composed of programs, data and documents. Each of these
items comprises a configuration that is created as part of the software
engineering process.

Mr. Sorabjee also drew the attention of the Court to the definitions of
H
1052 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

·- A "Computer" and "Computer Programme" in The Copyright Act, 1957. These
read as follows:

"Computer" includes any electronic or similar device having
information processing capabilities".

B "Computer programme" means a set of instructions expressed in
words, codes, schemes or in any other form, including a machine
readable medium, capable of causing a computer to perform a
particular task or achieve a particular result."
...
Mr. Sorabjee submitted that the definitions show that a computer
C programme falls within the definition of literary work and is intellectual
property of the programmer.

Mr. Sorabjee submitted that a computer software is nothing but a set of
commands, on the basis of which the computer may be directed to perform
.D the desired function. He submitted that a software is completely unlike a
book or a painting. He submitted that when the customer purchases a book
or a painting what he gets is the final product itself. Mr. Sorabjee submitted
that in cases of software the consumer does not get any final product but all
that he gets is a-set of commands which enable his computer to function. He
submitted that having regard to its nature and inherent characterstic, software
E is intangible property which cannot fall within the definition of the term
"goods" in Section 2(h) of the said Act.

Mr. Sorabjee submitted that the question as to whether software is
tangible or intangible property has been considered by the American Courts.
He fairly pointed out that in America there is a difference of opinion amongst
F the various Courts. He submitted that, however, the majority of the Courts
have held that a software is an intangible property. He showed to the Court
a number of American Judgments, viz., the cases of Commerce Union Bank
v. Tidwell, reported in 538 S.W.2d 405; State ofAlabama v. Central Computer
Services, INC reported in 349 So. 2d 1156; The First National Bank of Fort
G Worth v. Bob Bullock, reported in 584 S.W.2d 548; First National Bank of
Springfield v. Department ofRevenue, reported in 421 NE2d 175; Compuserve,
INC. v. Lindley, reported in 535 N.E. 2d 360 and Northeast Datacom, Inc.,
et al v. City of Wallingford, reported in 563 A2d 688. In these cases, it has
been held that 'computer software' is intangible personal property. The
reasoning for arriving at this conclusion is basically that the information
H contained in the software programs can be introduced into the user's computer
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA,J.] 1053
~""
by several different methods, namely, (a) it could be programmed manually A
by the originator of the program at the location of the user's computer,
working from his own instructions or (b) it could be programmed by a remote
programming terminal located miles away from the user's computer, with the
input information being transmitted by telephone; or (c) more commonly the
computer could be programmed by use of punch cards, magnetic tapes or
discs, containing the program developed by the vendor. It has been noticed
B
that usually the vendor will also provide manuals, services and consultation
designed to instruct the user's employees in the installation and utilization of
the supplied program. It has been held that even though the intellectual
process is embodied in a tangible and physical manner, that is on the punch
cards, magnetic tapes, etc. the logic or intelligence of the program remains c
intangible property. It is held that it is this intangible property rig~t which is
acquired when computer software is purchased or leased. It has been held
that what is created and sold is information and the magnetic tapes or the
discs are only the means of transmitting these intellectual creations from the
originator to the user. It has been held that the same information could have
been transmitted from the originator to the user by ·way of telephone lines or D
fed directly into the user's computer by the originator of the programme and
that as there would be no tax in those cases merely because the method of
transmission is by means of a tape or a disc, it does not constitute purchase
of tangible personal property and the same remains intangible personal
property. It has been held that what the customer paid for is the intangible E
knowledge which cannot be subjected to the personal property tax. In these
cases, difference is sought to be made between purchase of a book, music
cassette/video or film and purchase of software on the following lines:

"When one buys a video cassette recording, a book, sheet music or
a musical recording, one acquires a limited right to use and enjoy the F
material's content. One does not acquire, however, all that the owner
has to sell. These additional incidents of ownership include the right
to produce and sell more copies, the right to change the underlying
work, the right to license its use to other and the right to transfer the
copyright itself. It is these incidents of the intellectual, intangible
competent of the software property that Wallingford has impermissibly
G
assessed as tangible property by linking these incorporeal incidents
with the tangible medium in which the software is stored and
transmitted."
~
It has been fairly brought to the attention of the Court that many other H
1054 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A American Courts have taken a different view. Some of those cases are South
Central Bell Telephone Co. v. Sidney J. Barthelemy reported in 643 So.2d
(1240); Comptroller of the Treasury v. Equitable Trust Company, reported in
464 A.2d 248; Chittenden Trust Co. v. Commissioner of Taxes reported in
465 A.2d 1100; University Computing Company v. Commissioner of Revenue
B for the State of Tennessee, reported in 677 S.W.2d 445 and Hasbro Industries,
INC v. John H. Norberg, Tax Administrator reported in 487 A.2d 124. In
these cases, the Courts have held that when stored on magnetic tape, disc or
computer chip, this software or set of instructions is physically manifested in
machine readable form by arranging electrons, by use of an electric current,
to create either a magnetized or unmagnetized space. This machine readable
C language or code is the physical manifestation of the information in binary
form. It has been noticed that at least three program copies exist in a software
transaction: (i) an original, (ii) a duplicate, and (iii) the buyer's final copy on
a memory device. It has been noticed that the program is developed in the
seller's computer then the seller duplicates the program copy on software and
transports the duplicates to the buyer's computer. The duplicate is read into
D the buyer's computer and copied on a memory device. It has been held that
the software is not merely knowledge, but rather is knowledge recorded in a
physical form having a physical existence, taking up space on a tape, disc or
hard drive, making physical things happen and can be perceived by the
senses. It has been_ held that the purchaser does not receive mere knowledge
E but receives an arrangement of matter which makes his or her computer
perform a desired function. It has been held that this arrangement of matter
recorded on tangible medium constitutes a corporeal body. It has been ;1eld
that a software recorded in physical form becomes inextricably intertwined
with, or part and parcel of the corporeal object upon which it is recorded, be
that a disk, tape, hard drive, or other device. It has been held that the fact that
F the information can be transferred and then physically recorded on another
medium does not make computer software any different from any other type
of recorded information that can be transferred to another medium such as
film, video tape, audio tape or books. It has been held that by sale of the
software programme the incorporeal right to the software is not transferred.
G It is held that the incorporeal right to software is the copyright which remains
with the originator. What is sold is a copy of the software. It is held that the
original copyright version is not the one which operates the computer of the
customer but the physical copy of that software which has been transferred
to the buyer. It has been held that when one buys a copy of a copyrighted
novel in a bookstore or recording of a copyrighted song in a record store, one
H only acquires ownership of that particular copy of the novel or song but not
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA, J.]1055
,....._
the intellectual property in the novel or song. A-
Mr. Dwivedi pointed out that the difference of opinion among the
various American Courts has arisen because under the American Statutes Act
what is taxable is "tangible personal property". He submitted that it is this
definition which required the American Courts to consider whether software
is tangible or intangible. Mr. Dwivedi submitted that the definition of the B
tenn "goods" in the said Act is a very wide definition. He submitted that
"goods" have been defined to mean all kinds of moveable property except
..,. those specified, namely, actionable claims, stocks, shares and securities. He
pointed out that the definition includes all materials, articles and commodities.
He submitted that the words "all materials, articles and commodities" have
been used in the said Act in the same sense as used in Article 366 (12) of
c
the Constitution of India. Article 366 provides that unless the context otherwise
requires, the expressions given therein would have the meanings respectively
assigned to them. Under Sub-clause (12), the tenn "goods" includes all
materials, commodities and articles. He submitted that the legislative power,
of the State to levy sales tax, is by virtue of Entry 54 of List II of Schedule D
7. Mr. Dwivedi relied upon a number of cases of this Court, set out hereafter,
to show that the term "goods" has been held to include even incorporeal and/
or intangible properties.

In the case of Commissioner of Sales Tax, Madhya Pradesh, Indore v.
Madhya Pradesh Electricity Board, Jabalpur reported in [1969] I SCC 200,
E
the question whether electricity was "goods" for the purposes of imposition
of sales tax under the Madhya Pradesh General Sales Tax Act, 1959. It was
noted that the definition of the term "goods" meant all kinds of "movable
property" and included "all materials, articles and commodities". It was held
as follows: F

.. "The reasoning which prevailed with the High Court was that a well-
defined distinction existed between the sale or purchase of "goods"
and consumption or sale of electricity otherwise there was no necessity
of having Entry No.53 but under Entry 53 taxes can be levied not
only on sale of electricity but also on its consumption which could G
,. not probably have been done under Entry 54. It is difficult to derive
much assistance from the aforesaid entries. What has essentially to be
seen is whether electric energy is "goods" within the meaning of the
relevant provisions of the two Acts. The definition in terms is very
wide according to which "goods" means all kinds of movable property.
H
1056 SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.

A Then certain items are specifically excluded or included and electric
energy or electricity is not one of them. The term "movable property"
when considered with reference to "goods" as defined for the purposes
of sales tax cannot be taken in a narrow sense and merely because
electric energy is not tangible or cannot be moved or touched like, for
instance, a piece of wood or a book it cannot cease to be movable
B property when it has all the attributes of such property. It is needless
to repeat that it is capable of abstraction, consumption and use which,
if done dishonestly, would attract punishment under Section 39 of the
Indian Electricity Act, 1910. It can be transmitted, transferred,
delivered, stored, possessed etc. in the same way as any other movable
c property. Even in Benjamin on Sale, 8th Ed. Reference has been
made at p. 171 to· County of Durham Electrical etc. Co. v. Inland
Revenue, in which electric energy was assumed to be "goods". If
there can be sale and purchase of electric energy like any other
movable object, we see no difficulty in holding that electric energy
was intended to be covered by the definition of "goods" in the two
D Acts. If that had not been the case there was no necessity of specifically
exempting sale of electric energy from the payment of sales tax by
making a provision for it in the schedules to the two Acts~ It cannot
be denied that the Electricity Board carried on principally the business
of selling, supplying or distributing electric energy. It would therefore
E clearly fall within the meaning of the expression "dealer" in the two
Acts."

Thus this Court has held that the term "goods", for the purposes of
sales tax, cannot be given a narrow meaning. It has been held that properties
which are capable of being abstracted, consumed and used and/or transmitted,
F transferred, delivered, stored or possessed etc. are "goods" for the purposes
of sales tax. The subinission of Mr. Sorabjee that this authority is not of any
assistance as a software is different from electricity and that software is
intellectual incorporeal property whereas electricity is not, cannot be accepted.
In India the test, to determine whether a property is "goods", for purposes of
G 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,
p~ssessed etc. Admittedly in the case of software, both canned and uncanned,
all of these are possible.

H This Court in the case of H. Anraj v. Government of Tamil Nadu,
TATA CONSULTANCY SERVICES v. STATE OF A.P. [VARIAVA,J.] 1057

·~ reported in [1986] I SCC 414, had, in the context of Bengal Finance (Sales A
Tax) Act, 1941, occasion to consider whether lottery tickets were goods. It
has been submitted that the lottery tickets were an actionable claim as the
essence of a lottery was a chance for a prize for ·a price. This Court noted the
definition of "goods" and held that the term "moveable property", for the
purposes of sales tax, could not be taken in a narrow sense. It was held that
incorpcreal rights, like copyright or an intangible thing like electric energy,
B
were regarded as goods exigible to sales tax and, therefore, entitlement to a
right to participate in a draw, which was beneficial interest in movable property,
would fall within the definition of "goods".

The question whether electricity can be termed as "goods" again arose
before a Constitution Bench of this Court in State ofA. P. v. National Thermal
c
Power Corpn. Ltd and Ors., reported in [2002] 5 SCC 203. This Court,
noticing the earlier authorities, held that the definition of "goods" in Article
366(12) of the Constitution of India was very wide and included all kinds of
movable properties. It was held that the term "movable property" when
considered with reference to "goods" as defined for the purposes of sales tax D
cannot be taken in a narrow sense. It was held that merely because electric
energy was not tangible or would not be moved or touched like, for instance,
a piece of wood or a book it would not cease to be m.ovable property when
it had all the attributes of such property. It was held that electricity was
capable of abstraction, consumption and use which, if done dishonestly, was
E
punishable under Section 39 of the Indian Electricity Act, 1910. It was held
that electric energy could be transmitted, transferred, delivered, stored and
possessed in the same way as any other movable property. It was held that
electricity was thus "goods" within the meaning of the Sales Tax Act.

Thereafter, in the case of M P. Cement Manufacturers' Association v. F
State of M P. and Ors., reported in [2004] 2 SCC 249, the question was
whether the levy of cess on generation of electricity by the M.P. Upkar
Adhiniyam, 1981, as substituted by M. P. Upkar (Sanshodhan) Adhyadesh,
2001, was valid. It was held that there was no legislative competence in the
State to levy cess as the Parliament had exclusive legislative competence in
this respect by virtue of Entry 84 in List I of Schedule 7. However, in this G
case also it has been held that electricity was "goods" and that the State
would have competence to levy tax on the sale and consumption of electricity
.... but could not levy cess on the production of electricity.

In the case of Associated Cement Companies ltd v. Commissioner of
H
1058 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A Customs, reported in [200 l] 4 SCC 593, the question was whether customs
duty was leviable on technical material supplied in the form of drawings,
manuals and computer disc, etc. The further question was if customs duty
was leviable how it was to be valued. In that case also it was inter alia argued
that custom duty could not be levied as the drawings, designs diskettes, etc.
were not goods and that they only constituted ideas. It had been submitted
B that what was being.transferred was technology, i.e., the knowledge or know-
how and thus, even though this may be valuable, it was intangible property
and not goods. This Court noted Section 2(22) of the Customs.Act, which
defined "goods" as follows:

C "2.(22)(a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage;

l d) currency and negotiable instruments; and
D
(e) any other kind of moveable property."

It is thus to be seen that under the Customs Act, apart from what had
been specified therein, any other kind of moveable property constituted goods.
E This Court held as follows:

27. According to Section 12 of the Customs Act, duty is payable
on goods imported into India. The word "goods" has been defined in
Section 2(22) of the Customs Act and it includes in clause (c)
"baggage" and clause (e) "any other kind of moveable property". It
F is clear from a mere reading of the said provision that any moveable
artiele brought into India by a passenger as part of his baggage can
make him liable to pay customs duty as per the Customs Tariff Act.
An item which does not fall within clauses (a), (b), (c) or (d) of
Section 2(22) will be regarded as coming under Section 2(22)(e).
Even though the definition of the goods purports to be an inclusive
G one, in effect it is .so worded that all tangible moveable articles will
be the goods for the purposes of the Act by residuary clause (e) of
Section 2(22). Whether n:oveabl~ article comes as a part of a baggage,
or is imported into the country by any other manner, for the purpose
of the Customs Act, the provision of Section 12 would be attracted.
H Any media whether in the form of books or computer disks or cassettes
TAT A CONSULTANCY SERViCES v. STATE OF A.P. [VARIAVA,J.]1059

..... which contain information technology or ideas would necessarily be A
regarded as goods under the aforesaid provisions of the Customs Act.
These items are moveable goods and would be covered by Section
2(22)(e) of the Customs Act.

B
33. It is true that what the appellants had wanted was technical
advice on information technology. Payment was to be made for this
intangible asset. But the moment the information or advice is put on
a media, whether paper or diskettes or any other thing, that what is
supplied becomes a chattel. It is in respect of the drawings, designs C
etc. which are received that payment is made to the foreign
collaborators. It is these papers or diskettes etc. containing the
technological advice, which are paid for and used. The foreign
collaborators part with them in lieu of money. it is, therefore, sold by
them as chattel for use by the Indian importer. The drawings, designs,
manuals etc. so received are goods on which customs duty could be D
levied.

34. The decision of Winter v. Putnam, case (938 F 2nd 1033 (9th
Cir 1991) is also of no help to the appellants as in that case it was
the quality of information regarding mushrooms which was not
regarded as a product even though the encyclopaedia containing the E
information was regarded as goods. Here we are not concerned with
the quality of information given to the appellants. The question is
whether the papers or diskettes etc. containing advice and/or
information are goods for the purpose of the Customs Act. The answer,
in our view, is in the affirmative.
F

41. Significantly Chapter 49 also includes items which have
substantial intellectual value as opposed to the/ value of the paper on
which it is put. Newspapers, periodicals, journals, dictionaries etc. G
are to be found in <;hapter 49 wherein maps, plans and other similar
items are also included, while Chapter 97 talks about original
-~
engravings. It is clear that intellectual property when put on a media
would be regarded as an article on the total value of which customs
duty is payable.
H
1060 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A 42. To put it differently, the legislative intent can easily be gathered
by reference to the Customs Valuation Rules and the specific entries
in the Customs Tariff Act. The value of an encyclopaedia or a
dictionary or a magazine is not only the value of the paper. The value
of the paper is in fact negligible as compared to the value or price of
an encyclopaedia. Therefore, the intellectual input in such items greatly
B enhances the value of the paper and ink in ~he aforesaid examples.
This means that the charge of a duty is on the final product, whether
it be the encyclopaedia or the engineering or architectural drawings
or any manual. ·

C 43. Similar would be the position in the case of a programme of
any kind loaded on a disc or a floppy. For example in the case of
music the value of a popular music cassette is several times more
than the value of a blank cassette. However, if a pre-recorded music
cassette or a popular film or a musical score is imported into India
duty will necessarily have to be charged on the value of the final
D product. In this behalf we may note that in State Bank of India v.
Collector of Customs, ([2000] I SCC 727 : (2000) I Scale 72) the
Bank had, under an agreement with the foreign company, imported
a computer software and manuals, the total value of which was US
Dollars 4,084,475. The Bank filed an application for refund of customs
duty on the ground that the basic cost of software was US Dollars
E
401.047. While the rest of the amount of US Dollars 3,683,428 was
payable only as a licence fee for its right to use the software for the
Bank countrywide. The claim for the refund of the customs duty paid
on the aforesaid amount of US Dollars 3,683,428 was not accepted
by this Court as in its opinion, on a correct interpretation of Section
F 14 read ,with the Rules, duty was payable on the transaction value
determined therein, and as per Rule 9 in determining the transaction
value there has to be added to the price actually paid or payable for
the imported goods, royalties and the licence fee for which the buyer
is required to pay, directly or indirectly, as a condition of sale of
goods to the extent that such royalties and fees are not included in the
G price actually paid or payable. This clearly goes to show that when
technical material is supplied whether in the form of drawings or
manuals the same are goods liable to customs duty on the transaction
value in respect th€reof.

44. It is a misconception to contend that what is being taxed is (
H
TATA CONSULTANCY SERVICES v. STATE OF A.P. (VARIAVA,J.] 1061

~ intellectual input. What is being taxed under the Customs Act read A
with the Customs Tariff Act and the Customs Valuation Rules is not
the input alone but goods whose value has been enhanced by the said
inputs. The final product at the time of import is either the magazine
or the encyclopaedia or the engineering drawings as the case may be.
There is no scope for splitting the engineering drawing or the
encyclopaedia into intellectual input on the one hand and the paper B
on which it is scribed on the other. For example, paintings are also
to be taxed. Valuable paintings are worth millions. A painting or a
...
portrait may be specially commissioned or an article may be tailor-
made. This aspect is irrelevant since what is taxed is the final product
as defined and it will be an absurdity to contend that the value for the c
purposes of duty ought to be the cost of the canvas and the oil paint
even though the composite product, i.e., the painting, is worth millions.

45. It will be appropriate to note that the Customs Valuation
Rules, 1988 are framed keeping in view the GA TT protocol and the
WTO agreement. In fact our rules appear to be an exact copy of D
GA TT and WTO. For the purpose of valuation under the 1988 Rules
the concept of "transaction value" which was introduced was based
on the aforesaid GATT protocol and WTO agreement. The shift from
the concept of price of goods, as was classically understood, is clearly
discernible in the new principles. Transaction value may be entirely
different from the classic concept of price of goods. Full meaning has
E
to be given to the rules and the transaction value may include many
items which may not classically have· been understood to be part of
the sale price.

46. The concept that it is only chattel sold as chattel, which can F
be regarded as goods, has no rofo to play in the present statutory

• scheme as we have already observed that the word "goods" as defined
under the Customs Act has an inclusive definition taking within its
ambit any moveable property. The list of goods as prescribed by the
law are different items mentioned in various chapters under the
Customs Tariff Act, 1997 or 1999. Some of these items are clearly G
items containing intellectual property like designs, plans, etc.

47. In the case of St Albans City and District Council v.
International Computers Ltd., [1996) 4 All ER 481 Sir Ian Glidewell
" in relation to whether computer programme on a disc would be
H
1062 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A regarded.as goods observed at p. 493 as follows :

"Suppose I buy an instruction manual on the maintenance and

-
repair of a particular make of car. The instructions are wrong in an
important respect. Anybody who follows them is likely to cause serious
damage to the engine of his car. In my view, the instructions are an
B integral part of the manual. The manual including the instructions,
whether in a book or a video cassette, would in my opinion be 'goods'
within the meaning of the.1979 Act, and the defective instructions
would result in a breach of the implied terms in Section 14.

If this is correct, I can see no logical reason why it should not
c also be correct in relation to a computer disc on to which a program
designed and intended to instruct or enable a computer to achieve
particular functions has been encoded. If the disc is sold or hired by
the computer manufacturer, but the program is defective, in my opinion
there would prima facie be a breach of the terms as to quality and
D fitness for purpose implied by the 1979 Act or the 1982 Act."

48. The above view, in our view, appears to be logical and also
in consonance wit.h the Customs Act. Similarly in Advent Systems
Ltd. v. Unisys Corpn. (925 F 2d 67.0 (3d Cir 1991)) it was contended
before the Court in the United States that software referred to in the
E agreement between the parties was a "product" and not a "good" but
intellectual property outside the ambit of the Uniform Commercial
Code. In the said Code, goods were defined as "all things (including
specially manufactured goods) which are moveable at the time of the
identification for sale". Holding that computer software was a "good"
the Court held as follows :
F
"Computer programs are the· product of an intellectual process,
but once implanted in a medium they are widely distributed to
computer owners. An analogy can be drawn to a compact-disc
.
v

recording of an orchestral rendition. The music is produced by
the artistry of musicians and in itself is not a 'good', but when
G
transferred to a laser-read~ble disc it becomes a readily
merchantable commodity. Similarly, when a professor delivers a
lecture, it is not a good, but, when transcribed as a book, it becomes
a good.
{
H That a computer program may, be copyrightable as intellectual
TAT A CONSULTANCY SERVICES v. STATE OF A.P. [V ARIA VA,J.]l 063
___,._,.
property does not alter the fact that once in the form of a floppy A
disc or other medium, the program is tangible, moveable and
available in the marketplace. The fact that some programs may be
tailored for specific purposes need not alter their status as 'goods'
because the Code definition includes 'specially manufactured
goods'."
B
49. We are in agreement with the aforesaid observations and hold
that the value of the goods imported would depend upon the quality
of the same and would be represented by the transaction value in
respect of the goods imported."

To be noted that this authority is directly dealing with the question in
c
issue. Even though the definition of the term "goods" in the Customs Act is
not as wide or exhaustive as the definition of the term "goods" in the said
Act, it has still been held that the intellectual property when it is put on a
media becomes goods. Mr. Sorabjee submitted that whilst referring to the
case of St. Albans City and District Council v. International Computers Ltd., D
[1996] 4 All E R 481 this Court missed the express finding of that Court to
the effect "clearly, a disk is within this definition. Equally clearly, a program,
of itself, is not". Mr. Sorabjee submitted that the English case clearly holds
that software programs are not goods. He further submitted that the
observations of this Court in Associated Cements Case (Supra) are in the
context of valuation of imported goods and must therefore not be taken into E
consideration whilst deciding whether software is intangible, incorporeal
intellectual property. We are unable to accept this submission of Mr. Sc, abjee.
The observations have been made not just in the context of valuation but to
decide whether the items imported were "goods". Question of valuation would
come only if the items imported were "goods" on which custom duty could F
be levied.

In the case of Commissioner of Central Excise, Pondicherry v. Mis
Acer India Ltd., reported in JT (2004) 8 SC 53, this Court has considered in
detail what a software programme is. After so considering, it has been held
that a computer and operative software are different marketable commodities. G
This Judgment would also have been against the arguments canvassed by Mr.
Sorabjee but for the fact that this Court has itself clarified as follows:

"86. We, however, place on record that we have not applied our mind
' as regard the larger question as to whether the informations contained
H
1064 SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.

A in a software would be tangible personal property or not or whether
preparation of such software would amount to manufacture under
different statues."

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
B 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. (supra). A software
programme may consist of various commands which enable the computer to
perfonn a designated task .. The copyright in that programme may r~main
C 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/
D CD or a sale ofa 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
0
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
E 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,
F stored, possessed etc. The software. programs 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
G 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"'.
(
H [emphasis supplied]
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA, J.] 1065
-"' Mr. Sorabjee submitted that the High Court correctly held that unbranded A
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 B
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 C
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.
D
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.

S.B. SINHA, J : INTRODUCTION:
E
Whether an intellectual property contained in floppies, disks or CD-
ROMs would be 'goods' within the meaning of Andhra Pradesh G.meral
Sales Tax Act, I957 (hereinafter called as 'the Act') is the question involved
in this appeal which arises out of a judgment and order dated 12th December,
1996 passed by the Andhra Pradesh High Court.
F
"Goods" : Meaning

The said expression has been defined in Section 2(b) to, inter alia,
mean all kinds of moveable property and includes all materials, articli.::s and
commodities. The amplitude of the said expression is required to be considered G
with a view to answer the question involved in this appeal.

The expression 'goods' is not a term of art. Its meaning varies from
statute to statute. The term 'goods' had been defined in the Act as also in
Clause (12) of Article 366 of the Constitution to include all materials,
commodities and articles. Commodity is an expression of wide connotation H
1066 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.
"('-
A and includes every thing of use or value which can be an object of trade and
commerce.

In Jagir Singh and Ors. v. State of Bihar and Anr., etc. etc., AIR
( 1976) SC 997 it is stated:

B "20. The general rule of construction is not only to lo9k at the words
but to look at the context, the collocation and the object of such
words relating to such matter and interpret the meaning according to
'f-
what would appear to be the meaning intended to be conveyed by the
use of the words under the circumstances. Sometimes definition
clauses create qualification by expressions like "unless the c·ontext
c otherwise requires"; or "unless the contrary intention appears''; or "if
not inconsistent with the context or subject-matter". "Parliament
would legislate to little purpose", said Lord Macnaghten in Netherseal
Co. v. Bourne, (1889) 14 AC 228, "if the objects of its care might
supplement or undo the work of legislation by making a definition
D clause of their own. People cannot escape from the obligation of a
statute by putting a private interpretation on its language." The courts
will always examine the real nature of the transaction Ly which it is
sought to evade the tax."

In Words and Phrases, Volume (7A, Permanent Edition at page 590,
E 'commodity' has been defined as under:

"A "commodity" is an article of trade, a movable article of value;
something that is bought and sold. U.S. v. Sischo, D.C. Wash., 262
F. 1001, 1005.

F The term "commodity" includes every movable thing that is bought
or sold except animals. Peterson v. Currier, 62 III. App. 163.

"Commodity" meaning that which affords convenience or advantage,
especially in commerce, including everything movable which is bought
and sold. McKeon v. Wolf, 77 III. App. 325."
G The definition of 'goods' in Sales of Goods Act is also of wide import
which means every kind of movable property. Property has been defined
therein to mean the general property in goods and not merely a special
property. It is not much in dispute that 'goods' would comprehend tangible
and intangible properties, materials, commodities and articles and also r ,
H corporeal an incorporeal materials, articles and commodities. If a distinction
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA, J.) 1067

is sought to be made between tangible and intangible properties, materials, A
commodities and articles and also corporeal and incorporeal materials, the
definition of goods will have to be rewritten of comprising tangible goods
only which is impennissible. This Court, therefore, will have to confine
itself to the question as to whether the concerned software would come
within the purview of "goods". In the Constitution, goods as such is not B
defined. An expansive definition with the said expression has been given
which is indicated by the expression "includes". Such an expression is also
of wide amplitude. [See Pradeep Kumar Biswas v. Indian Institute ofChemical
Biology, [2002] 5 SCC 111, para 5 & 6].

When the word 'includes' is used in an interpretation clause, it must be C
construed as comprehending not only such things as they signify according
to their nature and import but also those things which the- interpretation
clause declares that they shall include. [See Scientific Engineering House
Pvt. Ltd. v. Commissioner of Income-tax, Andhra Pradesh [1986] 1 SCC
U].
D
RE: SUBMISSION OF BEHALF OF THE APPELLANT

Reference by Mr. Sorabjee to the provisions of Copyright Act, in my
opinion, was not apposite.

Copyright Act and the Sales Tax Act are also not statutes in pari E
materia and as such the definition contained in the fonner should not be
applied in the latter. [See Jagatram Ahuja v. Commr. of Gift-tax, Hyderabad
AIR (2000) SC 3195, p. 3201]

In absence of incorporation or reference, it is trite that it is not
pennissible to interpret a word in accordance with its definition in other F
statute and more so when the same is not dealing with any cognate subject.
[See State of Kera/av. Mathai Verghese and Ors., [1986] 4 SCC 746, p. 753
and Feroze N. Dotivala v. P.M Wadhwani and Ors., [2003] 1 SCC 433, p.
442]

.. It may not be necessary for us to rely upon the decisions of this Court G
in H. Anraj v. Government ofT.N., [1986] 1SCC414 the correctness whereof
has been doubted in Sunrise Associates v. NCT of Delhi, [2000] 10 SCC
420]. It is also not necessary to rely upon the Australian decision, Pont Data
Australia Pty Ltd. v. ASX Operations Pty Ltd. and Anr., (1990) 93 Australian
Law Reports 523] which is said to have been reversed in Re: ASX Operations H
1068 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A Pty Ltd. and Australian Stock Exchange Ltd. and Pont Data Australia Pty
Ltd. [FED No. 710 Trade Practices (l 99 l) ATPR para 4 I -069 97 ALR 513/
19 IPR 323 27 FCR 460.

However, we may notice that the Federal Court of Australia while
reversing the judgment was of the opinion that as the definition of 'goods'
B contained in Sub-Section (4) of Section 4 of the TP Act included gas and
electricity, the same would not be held to mean further including "encoded
electrical impulses". It was, however, noticed:

"We should add that in Toby Constructions Products Pty Ltd v
Computa Bar (Sales) Pty Ltd, (1983) 2 NSWLR 48, Rogers J. held
c that a sale of a computer system, comprising both hardware and
softw.are, was a sale of "goods" within the meaning both of the Sale
of Goods Act 1923 (N.S. W.) and the warranties implied by Part V of
the TP Act. His Honour said (supra) at 54), with reference to United
States authorities, that he did not wish it to be thought he was of the
D view that software by itself may not be "goods". This is a question
which is left open after the present appeal, which, as will be apparent,
has decided a narrower point."

The standard works on software by Mr. Rahul Matthan and Mr. Roger
S. Pressman, relied upon by Mr. Sorabjee, may be relevant for proper
E understanding as to what a software is and what is the nature and character
of software and in ordinary parlance may contrast a book, ordinary video or
audio cassette but it is well settled that the applicability of the statute would
depend upon its purport and object. Taxability of a software has its history
in other countries. Its journey in American courts started in the Seventies.
There had been a difference of opinion in different jurisdictions as regards
F taxability of the software. The majority of the courts held that it is intangible
property, but the Federal Supreme Court said that it is not so. The State
Legislatures made amendments as a result whereof a shift in the approach
started. Having regard to the changes in definition even the American Courts
began holding that tax can be imposed on such softwares.
G
In Advent Systems Ltd. v. Unisys Corpn., 925 F. 2d 670 (3rd Cir. 1991),
relied on by Mr. Sorabjee, the court was concerned with interpretation of
...
uniform civil code which "applied to transactions in goods". The goods
therein were defined as "all things (including specially manufactured goods)
which are moveable at the time of the identification for sale". It was held: .•
H
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA, J.] 1069

"Computer programs are the product of an intellectual process, but A
once implanted in a medium are widely distributed to computer owners.
An analogy can be drawn to a compact disc recording of an orchestral
rendition. The music is produced by the artistry of musicians and in
itself is not a "good," but when transferred to a laser-readable disc
becomes a readily merchantable commodity. Similarly, when a
professor delivers a lecture, it is not a good, but, when transcribed as B
a book, it becomes a good.

That a computer program may be copyrightable as intellectual property
does not alter the fact that once in the form of a floppy disc or other
medium, the program is tangible, moveable and available in the C
marketplace. The fact that some programs may be tailored for specific
purposes need not alter their status as "goods" because the Code
definition includes "specially manufactured goods."

The topic has stimulated academic commentary with the majority
espousing the view that software fits within the definition of a "good" D
in the U.C.C.

Applying the U.C.C. to computer software transactions offers
substantial benefits to litigants and the courts. The Code offers a
uniform body of law on a wide range of questions likely to arise in
computer software disputes: implied warranties, consequential E
damages, disclaimers of liability, the statute of limitations, to name
a few.

The importance of software to the commercial world and the
advantages to be gained by the uniformity inherent in the U.C.C. are
strong polity arguments favoring inclusion. The contrary arguments F
are not persuasive, and we hold that software is a "good" within the
definition in the Code."

In Colonial Life Insurance Co. v. Electronic Data Systems Corp., 817
F. Suppl. 235 (supra), Advent Systems Ltd. (supra) was followed.
G
Linda A. Sharp, J.D., in an Article titled "Computer Software or Printout
Transactions as subject to State Sales or Use Tax", published in 36 ALR 5th
33, noticed the development of law as well as technological development of
computers and opined that a tape containing a copy of a canned programme
does not lose its tangible character because its content is a reproduction of
the product of intellectual effort just as the phonorecord does not become H
1070 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A intangible because it is a reproduction of the product of artistic effort. The
learned author referred to a large number of case laws wherein such a statement
of law was enunciated. In the article various statutes defining software as
tangible goods had also been taken notice of.

Strong reliance has been placed by Mr. Sorabjee on a judgment of
B Illinois Supreme Court in First National Bank of Springfield v. Department
of Revenue, [421 N.E.2d 175, 85 1112d 84, 421 NE2d 175], wherein software
was held to be intangible personal property on the premise :

"The tapes were certainly not the only medium through which the ..
information could be transferred. In this way, the tapes differ from
c a movie film, a phonograph record or a book, whereby the media
used are the only practicable ways of preserving those articles. Thus,
while those articles and the apes are similar in that they physically
represent the transfer of ideas or artistic processes, whereas computer
programs are separable from the tapes. Not only may software
D information be conveyed any number of ways, but it may even be
copied off of the tapes and stored, sing another medium. (see Bryant
& Mather, Property Taxation of Computer Software, 18 N.Y.L.F. 59,
67 ( 1972). In short, it is not the tapes which are the substance of the
transaction is, in instance, the transfer of intangible personal property
and, as such, is not taxable. Under the Illinois Use Tax Act.. ..."
E
The said decision was rendered in 1981. However, subsequently in
Comptroller of the Treasury v. Equitable Trust Company, [464 A.2d 248], an
earlier decision of the Tennessee Court in Commerce Union Bank v. Tidwell,
[538 *473 S.W.2d 405], as also First National Bank of Springfield (supra),
were considered wherein it was observed :
F
"We can take judicial notice, based on modem human experience,
that the technology, exists for producing a copy of a movie film on
disc, of a phonograph record on tape, and of a book on microfiche.
We have previously discussed how the program copy is not separated
from the tape, when it is used in the computer. See B.U. Note, supra,
G
at 188-89. To remove the program copy from the magnetic tape
requires that it be overwritten, or obliterated in a magnetic field, in
the way in which one dictating on tape makes corrections or wipes
the tape clean."

Thus, the court found a change in the concept and noticed a departure
H
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA, J.) 1071

from earlier view that the computer software was intangible property. The A
argument of severability which had held the field was also negatived. Noticing
several other judgments, it was held :

"What is troublesome about (the tax court) approach is the fact
that, while a substantial portion of the software is of a tangible nature,
i.e. punched cards, magnetic tapes, instructions covering operation or B
applications, (for property tax purposes) the remainder consists of
personal services to be rendered after purpose ...... "

In the aforementioned premise, it also negatived the contention which
incidentally has been raised by Mr. Sorabjee that the price paid for a copy
of a canned programs reflects the cost of developing the programs which the C
proprietor hopes to recover, with profit, by spreading the cost among its
customers, stating :

" ........ Simply because the canned program on tape is much more
expensive than the typical phonorecord, the program tape is not any D
less tangible."

In Compuserve, INC v. Lingley, [535 N.E. 2d 360], the court disagreed
with the opinions contained in the earlier judgments and stated the law in the
following terms :

" .......... Thus, the essence of the transaction in the sale of computer E
software was the purchase of nontaxable intangible information. The
Missouri Supreme Court in James and the Texas Court of Civil Appeals
in First National Bank of Fort Worth also used an essence-or- purpose-
of- the-transaction test to determine that computer software is
intangible prope1ty. F
The Supreme Court of Ohio in Interactive Information Systems,
Inc. v. Limbach, (1985), 18 Ohio st. 3d 309, 311, 18 OBR 356, 357-
358, 480 N.E. 2d 1124, 1126, in determining the taxability of computer
hardware also recognized that computer programs are intangible
property when the court stated : G
" ....... Prior to encoding the tape, the appellee is dealing with
intangibles-ideas, plans, procedures, formulas, etc.; and, although these
intangibles are in some respects transformed or converted (or
'organized') into a different state or form, rnch transformation or
• conversion is not 'manufacturing' because· no 'material or thing' has H
1072 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A been transfonned or converted." (Emphasis sic.) .t -

The Supreme Court of Ohio also distinguished that the tapes were
tangible, while the computer infonnation was intangible.

The courts that have found computer software to be tangible have
based their decisions on the fact that the computer program was
B
coded on a tangible medium, such as a computer tape. See Citizens
and Southern Systems, Inc. v. South Carolina Tax Comm. (1984),
280 S.C. 138, 31lS.E.2d 717; Hasbro Industries, Inc. v. Norberg,
(R.l. 1985), 48iA.2d 124; Chittenden Trust Co. v. King, (1983), 143
Vt. 271, 465 A.2d 1100; and Comptroller of the Treasury v. Equitable
c Trust Co. (1983), 296 Md. 459, 464 A.2d 248 (finding that only
noncustomized computer software is tangible property)."

It is true that in Compuserve, Inc. (supra), the court found that the
computer software developed by the appellants therein was intangible property,
but a perusal of the said judgment shows the other views of the other courts
D were noticed therein wherein computer software was held to be a tangible
property on the ground that the computer programme was coded on a tangible
medium such as a computer tape.

Northeast Datacom, Inc. et al. v. City of Wallingford, [212 Conn.639,
E 563 A2d 688, was rendered on the premise of the severability doctrine. The
said judgment, however, was ren,dered keeping in view the statute levying
tax on personal property wherein the phrase "tangible personal property' was
added by amendment in 196 l by Public Act 61 No. 24.

In South Central Bell Telephone Co. v. Sidney J. Barthelemny, et al.
F [643 So. 2d 1240 : 36 A.L.R. 5th 689], the Supreme Court of Louisiana
noticed the definition of 'tangible personal property' which was in the
following tenns :

"Personal property which may be seen, weighed, measured, felt
or touched, or is in any other manner perceptible to the senses. The
G tenn 'tangible personal property' shall not include stocks, bonds,
notes or other obligations or securities."

It was held :

"The tenn "tangible personal property" set forth in the City Code,
{
H and its synonymous Civil Code concept "corporeal movable", must
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA,J.] 1073
,_ ~ be given their property intended meaning. Physical recordings of A
computer software are not incorporeal rights to be comprehended by
the understanding. Rather, they are part of the physical world. For
the reasons set out below, we hold the computer software at issue in
this case constitutes corporeal property under out civilian concept of
that term, and thus, is tangible personal property, taxable u/s. 56-21 B
of the City Code."

The court, however, noticed that the shift in the trend was not uniform.
Having regard to the fact that the computer software became the knowledge
and understanding and upon discussing the characteristics of computer software
and classification thereof as tangible or intangible under Louisiana law, it C
was held :

"The software itself, i.e. the physical copy, is not merely a right
or an idea to be comprehended by the understanding. The purchaser
of computer software neither desires nor receives mere knowledge,
but rather receives a certain arrangement of matter that will make his D
or her computer perform a desired function. This 13 arrangement of

- matter, physically recorded on some tangible medium, constitutes a
corporeal body.

We agree with Bell and the court of appeal that the form of the
delivery of the software-magnetic tape or electronic transfer via E
modem- is of no relevance. However, we disagree with Bell and the
court of appeal that the essence or real object of the transaction was
intangible property . That the software can be transferred to various
media i.e. from tape to disc, or tape to hard drive, or even that it can
be transferred over the telephone lines, doles not take away from the
fact that the software was ultimately recorded and stored in physical F
form upon a physical object. See Crockett, supra, at 872-74; Shontz,
at 168-70; Cowdrey, supra, at ·188-90. As the court of appeal
explained, and as Bell readily admits, the programs cannot be utilized
by Bell until they have been recorded into the memory of the electronic
telephone switch. 93-1072, at p. 6, 631 So.2d at 1342. The essence G
of the transaction was not merely to obtain the intangible "knowledge"
or "information", but rather, was to obtain recorded knowledge stored
in some sort of physical fQrm that Bell's computers could use.
Recorded as such, the software is not merely an incorporeal idea to
be comprehended, and would be of no use if it were. Rather, the
H
1074 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A software is given physical existence to make certain desired physical I
'I
.

things happen.

One cannot escape the fact that software, recorded in physical
form, becomes inextricably intertwined with, or part and parcel of the
corporeal object upon which it is recorded , be that a disc, tape, hard
B drive, or other device. Crockett, supra, at 871072; Cowdrey, Supre,
at 188-90. That the information can be transferred and then physically
recorded on another medium is of no moment, and does not make
computer software any different than any other type of recorded
information that can be transferred to another medium such as fil,
video tape, audio tape, or books."
c
It was further opined :

"It is now common knowledge that books, music, and even movies
or other audio/visual combinations can be copied from one medium
to another. They are also all available on computer in such forms as
D floppy disc, tape, and CD-ROM. Such movies, books, music, etc ....
can all be delivered· by and/or copied from one medium to another,
including electrical impulses with the use of a modem. Assuming
there is sufficient memory space available in the computer hard disc
drive such movies, books, music, etc·. can also be recorded into the
E permanent memory of the computer such as was done with the software
in this case.

93-1072, at p. 4, 5. 631 So.2d at 1346-4 7 (dissenting opinion).
See also Shontz. Supra, at 168-170; Harris, supra, at 187.

That the information, knowledge, story, or idea, physically
F manifested. in recorded form, can be transferred from one medium to
15 another does not affect the nature of that physical manifestation
as corporeal, or tangible. Shontz, supra, at 168-170. Likewise, that
the software can be transferred from 1248 one type of physical
recordation, e.g., tape, to another type, e.g., disk or hard drive, does
G not alter the nature of the software, Shontz," supra, at 168-170; it still
has corporeal qualities and is inextrkably intertwined with a corporeal
.T '
object The software mcst be stored in physical form on some tangible I
object somewhere .... "

Reversing the findings of the court below that the computer software
H constitutes intellectual property, it was opined :
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA,J.] 1075
J "In sum, once the "infonnation" or "knowledge" is transfonned A
into physical existence and recorded in physical form, it is corporeal
property. The physical recordation of this software is not an
incorporeal right to be comprehended. Therefore we hold that the
switching system software and the data processil)g software involved
here is tangible personal property and thus is taxable by the City of B
New Orleans."

Ii St. Albans City :

Mr. Sorabjee submitted that this Court Associated Cement Companies
Ltd. v. Commissioner of Customs, [2001] 4 SCC 593 has misapplied the
principles contained in St. Albans City and District Council v. International C
Computers, [1996] 4 All ER 481.

Our attention in this behalf has been drawn to the judgment of Sir Iain
Glidewell which is in the following tenns:

"During the course of the hearing, the word '.software' was used to D
include both the (tangible) disk onto which the. COMCIS program
had been encoded and the (intangible'.)I program itself. In order to
answer the question, however, it is necessary to distinguish between
the program and the disk carrying the program.

In both the Sale of Goods Act, 1979, s 61, and the Supply of E
Goods and Services Act 1982, s.18, the definition of goods includes
'all personal chattels other than things in action and money'. Clearly,
a disk is within this definition. Equally clearly, a.Program, of itself,
is not."

As regard utility of an instruction manual, it was observed:
F

"As I have already said, the program itself is not 'goods' within the
statutory definition. Thus a matter of the program in the way I have
described does not, in my view, constitute a transfer of goods. It
follows that in such circumstances there is no statutory implication of G
tenns as to quality or fitness for purpose." t

The question which arose in that case was as to whether the defendant
therein had breached its contract to supply the plaintiffs with a computer
system to be used in administering their collection of community charge by
providing valid software which significantly overstated the relevant population H
1076 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A of their area and, thus, caused them to suffer a loss of revenue. The suit for
damages was allowed. It was held by the Court of Appeals that the submission
on behalf of the appellant was that the question us to whether as between the
plaintiffs and the defendant the plaintiffs dealt as consumer or on the
defendant's written standard tenns of business within Section 3(1) in the
light of the definition of 'business' in Section 14 was answered in the negative
B on the ground that one cannot be said to deal on another's standard tenns of
business, negotiate with those tenns before entering into the contract.

Glidewell, J. noticed that in that case the evidence was that in relation
to many of the programme releast:s, an employee of ICL went to St. Albans'
C premises where the computer was installed taking with him a disk on which
the new programme was encoded and himself perfonned the exercise of
transferring the programme into the computer. The learned Judge despite
holding that the programme its~lf is not 'goods' held that such tenn would
employ to all types of contracts that the programme will be reasonably capable
of achieving the intended purpose.
D
The definition of goods in the said Act does not merely include personal
chattels but all articles, commodities and materials. The definition of goods
in the said Act was wider in tenn than in Sale of Goods Act, 1979 and the
Supply of Goods and Services Act 1982. Furthennore, here, we are not
concerned with a programs which is not a part of the disk but a programs
E contained in a disk.

Strict Interpretation or Literal Interpretation :

We, in this case, are not concerned with the technical meaning of
computer and computer programs as in a fiscal statute plain meaning rule is
F applied. [See Partington v. Attorney-Genera/, (1869) LR 4 HL 100, p. 122]

In interpreting an expression used in a legal sense, the courts are required
to ascertain the precise connotation which it possesses in law.

It is furthennore trite that a court should not be over zealous in searching
G ambiguities or obscurities in words which are plain. [See Inland Revenue
Commissioner v. Rossminster Ltd, (1980) 1 All ER 80, p. 90]

It is now well-settled that when an expression is capable of more than
one meaning, the Court would attempt to resolve that ambiguity in a manner
H consistent with the purpose of the provisions and with regard to the (
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA, J.] I 077
consequences of the alternative constructions. [See Clark and Tokeley Ltd (ti A
a Spellbrook) v. Oakes, [1998] 4 All ER 353].

In Inland Revenue Commissioners v. Trustees of Sir John Aird's
Settlement, (l 984) Ch. 382, it is stated:

"Two methods of statutory interpretation have at times been B
adopted by the court. One, sometimes called literalist, is to make a
meticulous examination of the precise words used. The other
sometimes called purposive, is-to consider the object of the relevant
provision in the light of the other provisions of the Act the general
intendment of the provisions. They are not mutually exclusive and
both have their part to play even in the interpretation of a taxing C
statute."

In Indian Handicrafts Emporium and Ors. v. Union of India and Ors.,
[2003] 7 SCC 589 this Court expounded the theories of purposive construction.
[See also Ramesh Mehta v. Sanwal Chand Singhvi and Ors., JT 2004 (Suppl. I) D
SC 274]

-~ Francis Bennion in his oft quoted treatise "Statutory Interpretation" at
pages 368 & 369 states:

'·'Sub-section (2) Where the enactment is grammatically ambiguous,
the opposing constructions put forward are likely to be alternative E
meanings each of which is grammatically .possible. Where on the
other hand the enactment is grammatically capable of one meaning
only, the opposing constructions are likely to contrast an emphasized
version of the literal meaning with a strained construction. In the
latter case the court will tend to prefer the literal meaning, wishing F
to reject the idea that there is any doubt.

Example 149.2 In a tax avoidance case concerning capital transfer
tax, the Court of Appeal were called on to construe the Finance Act
1975 Sch 5 para 6(7) as originally enacted. Counsel for the Inland
Revenue put forward several alternative arguments on construction, G
but the court preferred the one based on the unglossed literal meaning.
It may be conjectured however that the other arguments helped to
convince the court that the Inland Revenue's case was to be preferred."

A statute or~inarily must be literally construed. Such a literal
construction would not be denied only because the consequence to comply H
1078 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A the same may lead to a penalty. This aspect of the matter has been considered
by this Court in Indian Handicrafts Emporium, (supra). Proceeding on the
basis that there existed a dichotomy, the Court ultimately held that the
resolution will have to be reached by reading the entire statute as a whole.
[See also Reema Aggarwal v. Anupam and Ors., [2004] 3 SCC 199]

B In Bairam Kumawat v. Union of India and Ors., [2003] 7 SCC 628]
this Court held:

"The Courts will reject 'that construction which will defeat the plain
intention of the Legislature even though there may be some
inexactitude in the language used. Reducing the legislation futility
c shall be avoided and in a case where the intention of the Legislature
cannot be given effect to, the Courts would accept the bolder
construction for the purpose of bringing about an effective result.
The Courts, when rule of purposive construction is gaining momentum,
should be very reluctant to hold that Parliament has achieved nothing
by the language it used when it is tolerably plain what it seeks to
D
achieve."

Referring to its earlier decisions, this Court opined :

"36. These decisions are authorities for the proposition that the rule
of strict construction of a regulatory/penal statute may not be adhered
E to, if thereby the plain intention of Parliament to combat crimes of
special nature would be defeated."

[See also Swedish Match AB and Anr. v. Securities and Exchange
Board, India & Anr., (2004) 7 SCALE 158]

p So long natural meaning for the charging section is adhered to and
when the law is certain, then a strange meaning thereto should not be given.

[See Indian Banks' Association, Bombay and Ors. v. Mis. Devkala
Consultancy Services and Ors., JT (2004) 4 SC 587] '
G Although normally a taxing statute is to be strictly construed but when
the statutory provision is reasonable akin to only one meaning, the principles
of strict construction may not be adhered to. [See Commnr. of Central
Excise, Pondicherry v. Mis. ACER India ltd, 2004 (8) SCALE 169]

Determination :
(
H A software may be intellectual property but such personal intellectual
TATA CONSULTANCY SERVICES v. STATE OF A.P. [SINHA,J.] 1079

property contained in a medium is bought and sold. It is an article of value. A
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 B
tax under a fiscal statute, it may not make a difference. A program 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 C
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 program 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 D
marketability.

At this juncture, we may notice the meaning of canned software as
under:

"(7) 'Canned• software' +means that is not specifically created for E
a particular consumer. The sale or lease of, or granting a licence to
use, canned software is not automatic data processing and computer
services, but is the sale of tangible personal property. When a vendor,
in a single transaction, sells canned software that has been modified
or customized for that particular consumer, the transaction will be F
considered the sale of tangible personal property if the charge for the
modification constitutes no more than half of the price of the sale."

[See STATE-CASE APP-CT,OH-TAXRPTR 402-978 Ohio Board of
Tax Appeals, Aeroquip Cop. Page 9 of 12]
G
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 program is created it is necessary to
encode it, upload the same and thereafter unloaded. Indian law, as noticed H
1080 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A by my learned Brother, Variava, J., does not make any distinction between
tangible property and intangible property. A 'go0ds' 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
B 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.

Recently, in Commnr. Of Central Exdse, Pondicherry v. Mis. ACER
India Ltd., (2004) 8 SCALE 169] this Court has held that operational software
C loaded in the hard disk does not lose its character as tangible goods.

If a canned software otherwise is 'goods', the Court cannot say it is
not because it is an intellectual property which would tantamount to rewriting
the judgment. In Madan Lal Fakirchand Dudhediya v. Shree Changdeo Sugar
Mills Ltd., [1967] Suppl. 3 SCR 973, this Court held that the court cannot
D rewrite the provisions of law which clearly is the function of the Legislature
which interprets them.

I respectfully agree with the opinion of Variava, J. that the appellant
herein is liable to pay sales tax on the softwares marketted by it and the
appeals should be dismissed.
E
Appeal dismissed.

ORDER

Parties agreed that the points raised in this Writ Petition are covered by
F the ratio of the Judgment pronounced today in Civil Appeal No. 2582 of
1998 etc. [Tata Consultancy Services v. State of Andhra Pradesh]. The Writ
Petition accordingly stands dismissed.

NJ. Writ Petition dismissed.

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I