2004 (11) TMI 11 - SC - VAT and Sales Tax

Computer software - 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 - The software marketed by the Appellants is canned software and, thus, would be exigible to sales tax.

Issues Involved:
1. Whether canned software sold by the appellants can be termed as "goods" and assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957.
2. Interpretation of the term "goods" under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957.
3. Applicability of sales tax to intellectual property contained in physical media.
4. Distinction between tangible and intangible property in the context of sales tax.

Issue-Wise Detailed Analysis:

1. Whether canned software sold by the appellants can be termed as "goods" and assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957:
The Supreme Court examined whether canned software sold by the appellants qualifies as "goods" under the Andhra Pradesh General Sales Tax Act, 1957. The Commercial Tax Officer, Hyderabad, had initially held that the software were goods and levied sales tax, a decision upheld by the Appellate Deputy Commissioner and the Sales Tax Appellate Tribunal. The Andhra Pradesh High Court also dismissed the appellants' challenge.

2. Interpretation of the term "goods" under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957:
Section 2(h) of the Act defines "goods" as all kinds of movable property except actionable claims, stocks, shares, and securities, including materials, articles, and commodities. The Court noted that the term "goods" includes both tangible and intangible properties, provided they are capable of being abstracted, consumed, used, transmitted, transferred, delivered, stored, or possessed. The definition is broad and encompasses various forms of movable property.

3. Applicability of sales tax to intellectual property contained in physical media:
The Court held that intellectual property, once put on a media such as books, canvases, computer discs, or cassettes, and marketed, becomes "goods" susceptible to sales tax. The Court emphasized that the sale is not just of the media but the intellectual property embedded within it, which cannot be separated from the media. The software and the media are inseparable, and what the buyer purchases is the intellectual property.

4. Distinction between tangible and intangible property in the context of sales tax:
The Court rejected the argument that software is intangible and thus not subject to sales tax. It referred to several cases, including the Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, where electricity was considered "goods" despite being intangible. The Court emphasized that the test for determining whether an item is "goods" includes its capability of abstraction, consumption, use, transmission, transfer, delivery, storage, and possession. Software, whether canned or uncanned, meets these criteria.

Conclusion:
The Court concluded that both branded and unbranded software, when marketed or sold, qualify as "goods" under the Andhra Pradesh General Sales Tax Act, 1957. The software's nature as intellectual property does not exempt it from being classified as goods. The Court dismissed the appeals, affirming the decisions of the lower authorities and the Andhra Pradesh High Court. The judgment clarified that the term "goods" includes both tangible and intangible properties capable of being abstracted, consumed, used, transmitted, transferred, delivered, stored, or possessed.

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