1996 (12) TMI 364 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of Andhra Pradesh Legislature under the Constitution of India.
2. Classification of branded software as "goods" under the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act).

Issue-Wise Detailed Analysis:

Issue 1: Legislative Competence of Andhra Pradesh Legislature

Question: Whether section 2(n) read with Explanation IV, sections 5 and 5-E of the APGST Act are without the legislative competence and therefore ultra vires the Constitution of India.

Analysis:
- Entry 54 of List II, Seventh Schedule: The State Legislature is competent to impose taxes on the sale or purchase of goods other than newspapers, subject to provisions of entry 92-A of List I. Entry 92-A authorizes the Central Government to levy tax on inter-State trade or commerce.
- Section 5 of the APGST Act: This is the charging section and mandates every dealer to pay tax on the turnover of sales or purchases of goods. Sub-section (1) specifies that tax is levied irrespective of the turnover quantum at rates specified in the Schedule. Sub-section (2) deals with the determination of turnover.
- Article 366(29A) of the Constitution: This clause, inserted by the 46th Amendment Act, 1992, includes a tax on the transfer of the right to use any goods for any purpose, whether or not for a specified period, for cash, deferred payment, or other valuable consideration.
- Section 5-E of the APGST Act: This section authorizes the levy of tax on amounts received by any dealer by transferring the right to use any goods for any purpose, whether or not for a specified period, to any lessee or licensee for cash, deferred payment, or other valuable consideration in the course of his business.
- Conclusion: The court held that the amendment of the Constitution and insertion of clause (29A) in Article 366 enlarge the scope of "tax on the sale or purchase of goods". Therefore, the contention that section 2(n) read with Explanation IV and sections 5 and 5-E of the APGST Act are beyond the legislative competence is devoid of any substance. The provisions are not ultra vires the Constitution.

Issue 2: Classification of Branded Software as "Goods"

Question: Whether branded software which consists of software programmes sold as packages like FOXPRO, WORDSTAR, WINGS, LOTUS, DBASE, WINDOWS, MS-DOS, UNIX, etc., fall within the meaning of "goods" and whether the turnover of their sale is taxable under the APGST Act.

Analysis:
- Definition of "Goods":
- Article 366(12) of the Constitution: "Goods" includes all materials, commodities, and articles.
- Section 2(h) of the APGST Act: "Goods" means all kinds of movable property other than actionable claims, stocks, shares, and securities and includes all materials, articles, and commodities.
- Judicial Interpretations:
- State of Bihar v. Rameshwar Jute Mills Ltd.: "Goods" must be construed to mean only tangible corporeal property and not abstract rights.
- Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax: Tangible property like steam falls within the meaning of "goods".
- Commissioner of Sales Tax v. Madhya Pradesh Electricity Board: Electricity is considered "goods" as it is capable of abstraction, consumption, and use.
- Assistant Sales Tax Officer v. B.C. Kame: A photographer's contract for use of skill and labour does not constitute a sale of "goods".
- Computer Software as "Goods":
- Branded Software: The court concluded that branded software (standardized and marketed software) falls within the ambit of "goods" under the APGST Act. This includes software contained in physical objects like floppies or discs.
- Unbranded Software: Custom-made software tailored to individual clients' needs does not fall within the meaning of "goods".
- Intellectual Property Argument: Intellectual property, such as software, can be considered "goods" if it is a movable property or identifiable commodity. The contention that software cannot be treated as "goods" merely because it involves intellectual activity was rejected.
- Bank Security Argument: The fact that software might not be accepted as security by banks does not exclude it from being "goods". The ability to erase software or the need for updates does not alter its classification as "goods".
- Exemption Argument: The argument that software should be exempt from tax like newspapers was dismissed as floppies or discs containing software cannot be treated as newspapers.

Conclusion: The court held that branded software packages like Oracle, Lotus, Masterkey, N-Export, Ex-Unigraphic, etc., are "goods" as defined under section 2(h) of the APGST Act. Consequently, the turnover of their sale is taxable under the APGST Act.

Final Judgment:
The writ petition and the tax revision cases were dismissed, and the court found no illegality in the common order of the Sales Tax Appellate Tribunal. The provisions of the APGST Act were upheld as constitutional, and branded software was classified as "goods" subject to sales tax.