1995 (11) TMI 221 - AT - Central Excise

Summary

Issues Involved:
1. Classification of Software as System Software or Application Software
2. Eligibility for relief based on the classification of software

Detailed Analysis:

1. Classification of Software as System Software or Application Software:

The Supreme Court directed the Tribunal to re-examine the classification of software into System Software and Application Software. The appellants argued that out of the total amount, Rs. 14.75 lacs relates to System Software and Rs. 60.17 lacs pertains to Application Software. The Tribunal was tasked with determining whether the amount related to Application Software qualifies for relief.

The appellants relied on the opinion of Professor S.C. Sahasrabudhe from IIT Bombay, who categorized the software into System Software and Application Software. The opinion was based on a technical report and excluded 46 kinds of software from being classified as Application Software. The appellants also cited American decisions and the opinion of the Department of Electronics, Government of India, which supported their classification.

The Departmental Representative, however, argued that textual authorities on computer technology should be followed for classification. He contended that the classification by Dr. Sahasrabudhe was not in accordance with these textual classifications and included utility programs as Application Software, which was incorrect. The Departmental Representative also pointed out inconsistencies in the opinion of the Department of Electronics and argued for the acceptance of Dr. Bajaj's classification from the National Informatics Centre.

The Tribunal considered both sides' submissions, expert opinions, and textual authorities. It noted that Application Software typically refers to programs that perform user-oriented tasks, while System Software manages the hardware resources and includes basic services. The Tribunal found that the broad-based classification by Professor Sahasrabudhe, which included utility programs as Application Software, was not satisfactory. Dr. Bajaj's classification, which categorized most items as System Software and only a few as Application Software, was deemed more reasonable and aligned with the Government's understanding and textual classifications.

2. Eligibility for Relief Based on the Classification of Software:

The Tribunal concluded that the appellants would be eligible for relief only for the items classified as Application Software by Dr. Bajaj. This classification was based on the appellants' description of each item and was found to be a reasonable basis for determining eligibility for relief. The Tribunal thus accepted Dr. Bajaj's classification and recommended it for acceptance.

Conclusion:

The Tribunal, after re-examining the classification of software as directed by the Supreme Court, accepted Dr. Bajaj's classification from the National Informatics Centre. The appellants are eligible for relief only for the items classified as Application Software by Dr. Bajaj. The Tribunal's findings were submitted to the Supreme Court in compliance with the direction dated 13-2-1995.