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Software sold off the shelf is liable to sales tax: SC

J. Venkatesan

New Delhi , Nov. 5

THE Supreme Court on Friday held that software programmes such as Oracle, Lotus and Unigraphics sold off the shelf are goods for the purpose of levy of sales tax by States.

A five-Judge Constitution Bench headed by Mr Justice N. Santosh Hegde gave this ruling on a special leave petition filed by Tata Consultancy Services (TCS) challenging the Andhra Pradesh High Court judgment upholding the levy of sales tax on software programmes developed by TCS and sold off the shelf.

The Bench that included Mr Justice S.N. Variava, Mr Justice B.P. Singh, Mr Justice H.K. Sema and Mr Justice S.B. Sinha said the term `goods' as defined in Article 366 of the Constitution and as defined under the Andhra Pradesh General Sales Tax Act would include all types of movable properties, tangible or intangible.

The judges said a software programme might consist of various commands to enable a computer to perform a designated function. The Bench said, "The copyright in that programme may remain with the originator of the programme but the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax."

According to TCS, it provided consultancy services including computer consultancy and sold computer software programmes. The AP Government treated the software sold by TCS as `goods' under the Sales Tax Act and, therefore, levied sales tax. Assailing the levy, TCS moved the High Court for quashing the sales tax demands raised against it.

The High Court upheld the levy and rejected the petition. The special leave petition by TCS was directed against this judgment dated December 12, 1996. The Constitution Bench framed the question - whether the software sold by TCS could be termed as `goods' and, as such, amenable to sales tax under the AP General Sales Tax Act. The Bench held that `software sold off the shelf' were goods and, thereby, upheld the High Court judgment.

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