Is off-the-shelf software supplied on a disc 'goods' that can be taxed as a sale?
Yes. A five-judge Bench of the Supreme Court held that branded software on floppies, discs or CD-ROMs is 'goods' within the Andhra Pradesh General Sales Tax Act, 1957 and Article 366(12) of the Constitution. The term covers all kinds of movable property, tangible or intangible. The test is not tangibility: it is whether the item is capable of abstraction, consumption and use, and whether it can be transmitted, transferred, delivered, stored and possessed. Software has all of those attributes. Copyright may stay with the author of the programme, but once copies are made and marketed they are goods. The appeals were dismissed.
Decided by the Supreme Court (Supreme Court of India - N. Santosh Hegde, S.N. Variava, B.P. Singh, H.K. Sema and S.B. Sinha JJ; judgments delivered by S.N. Variava J and S.B. Sinha J) on 2004-11-05, reported as Civil Appeal No. 2582 of 1998, with Civil Appeal Nos. 2584, 2585 and 2586 of 1998 (Supreme Court of India). It bears on the Income Tax Act 1961, in How Tax Law Is Read matters.
This is the decision that fixes what 'goods' means when intellectual property is supplied on a medium. The Court held that the buyer is not paying for the disc - as with a book, a painting or a music CD, he pays for what is on it - and that the software and the medium cannot be split up. It follows the customs decision in Associated Cement Companies and the electricity cases, and rejects the argument that copyright law, or the incorporeal character of a programme, takes software outside the definition. The Court also disagreed with the High Court's distinction between branded and unbranded software, saying unbranded software when marketed may equally be goods, while expressly leaving that question open because of issues such as the situs of the contract of sale and whether the contract is one for services.
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The appellant supplied software. The Andhra Pradesh authorities treated the supply as a sale of goods under the Andhra Pradesh General Sales Tax Act, 1957, which defines goods to mean all kinds of movable property and to include all materials, articles and commodities. By its judgment of 12 December 1996 the Andhra Pradesh High Court held that branded software was goods, while observing that unbranded software, though undoubtedly intellectual property, might perhaps fall outside that expression. The appellant's case was that a computer programme is intellectual property, incorporeal and intangible, that what passes is not a chattel, and it relied on the Copyright Act, on American authority including the Illinois decision in First National Bank of Springfield, and on the English decision in St Albans City and District Council v International Computers Ltd. Four connected civil appeals were heard together by a Bench of five judges. Other questions raised before the High Court were not pressed in the Supreme Court.
The appeals were dismissed with no order as to costs. The Court held that 'goods' as used in Article 366(12) and as defined in the State Act is very wide and includes all types of movable property, whether tangible or intangible. A software programme may consist of commands enabling a computer to perform a designated task, and the copyright in it may remain with its originator, but the moment copies are made and marketed it becomes goods susceptible to sales tax. Intellectual property, once put on a medium - books, canvas, discs or cassettes - and marketed, becomes goods; the Court saw no difference between the sale of a programme on a disc and the sale of music or a film on a cassette or CD. The software and the media cannot be split up, and what the buyer pays for is not the disc. The Court agreed that there is no distinction between branded and unbranded software but found no error in the High Court's holding that branded software is goods, and expressly expressed no opinion on unbranded software.
The Court's route was through the width of the definition rather than through the nature of software. 'Goods' is not a term of art and its meaning varies from statute to statute; here both the Act and Article 366(12) define it inclusively to take in all materials, commodities and articles, and an inclusive definition is of wide amplitude. Definitions from other statutes, the Copyright Act in particular, cannot be read in, because those Acts are not in pari materia and there is neither incorporation nor reference. The controlling test came from the electricity cases: in Madhya Pradesh Electricity Board, and again in the Constitution Bench decision in National Thermal Power Corporation, electricity was held to be goods because movable property for sales tax purposes cannot be read narrowly, and electricity can be abstracted, consumed, used, transmitted, transferred, delivered, stored and possessed. Software, both canned and uncanned, has all of those attributes. The customs decision in Associated Cement Companies was treated as directly in point: drawings, designs and discs carrying technical material are goods, and it is a misconception to say that what is taxed is the intellectual input, since what is taxed is the final product whose value the input has enhanced. Foreign authority went both ways, but the Court noted the shift in the American cases away from treating software as intangible property, and adopted the reasoning in Advent Systems that a programme, once implanted in a medium, is tangible, movable and available in the marketplace.
But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax.
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Handle my notice → Ask a CA on WhatsAppYes. A five-judge Bench of the Supreme Court held that branded software on floppies, discs or CD-ROMs is 'goods' within the Andhra Pradesh General Sales Tax Act, 1957 and Article 366(12) of the Constitution. The term covers all kinds of movable property, tangible or intangible. The test is not tangibility: it is whether the item is capable of abstraction, consumption and use, and whether it can be transmitted, transferred, delivered, stored and possessed. Software has all of those attributes. Copyright may stay with the author of the programme, but once copies are made and marketed they are goods. The appeals were dismissed. This was decided by the Supreme Court (Supreme Court of India - N. Santosh Hegde, S.N. Variava, B.P. Singh, H.K. Sema and S.B. Sinha JJ; judgments delivered by S.N. Variava J and S.B. Sinha J) and bears on the Income Tax Act 1961. It is reported as Civil Appeal No. 2582 of 1998, with Civil Appeal Nos. 2584, 2585 and 2586 of 1998 (Supreme Court of India). This is the decision that fixes what 'goods' means when intellectual property is supplied on a medium. The Court held that the buyer is not paying for the disc - as with a book, a painting or a music CD, he pays for what is on it - and that the software and the medium cannot be split up. It follows the customs decision in Associated Cement Companies and the electricity cases, and rejects the argument that copyright law, or the incorporeal character of a programme, takes software outside the definition. The Court also disagreed with the High Court's distinction between branded and unbranded software, saying unbranded software when marketed may equally be goods, while expressly leaving that question open because of issues such as the situs of the contract of sale and whether the contract is one for services. If it applies to you, the first step is this: When characterising a software supply, look at what the buyer actually gets and pays for rather than the value of the medium; the Court treated the two as inseparable.
The appellant supplied software. The Andhra Pradesh authorities treated the supply as a sale of goods under the Andhra Pradesh General Sales Tax Act, 1957, which defines goods to mean all kinds of movable property and to include all materials, articles and commodities. By its judgment of 12 December 1996 the Andhra Pradesh High Court held that branded software was goods, while observing that unbranded software, though undoubtedly intellectual property, might perhaps fall outside that expression. The appellant's case was that a computer programme is intellectual property, incorporeal and intangible, that what passes is not a chattel, and it relied on the Copyright Act, on American authority including the Illinois decision in First National Bank of Springfield, and on the English decision in St Albans City and District Council v International Computers Ltd. Four connected civil appeals were heard together by a Bench of five judges. Other questions raised before the High Court were not pressed in the Supreme Court. The matter was decided on 2004-11-05 by the Supreme Court (Supreme Court of India - N. Santosh Hegde, S.N. Variava, B.P. Singh, H.K. Sema and S.B. Sinha JJ; judgments delivered by S.N. Variava J and S.B. Sinha J). On those facts the Supreme Court held as follows. The appeals were dismissed with no order as to costs. The Court held that 'goods' as used in Article 366(12) and as defined in the State Act is very wide and includes all types of movable property, whether tangible or intangible. A software programme may consist of commands enabling a computer to perform a designated task, and the copyright in it may remain with its originator, but the moment copies are made and marketed it becomes goods susceptible to sales tax. Intellectual property, once put on a medium - books, canvas, discs or cassettes - and marketed, becomes goods; the Court saw no difference between the sale of a programme on a disc and the sale of music or a film on a cassette or CD. The software and the media cannot be split up, and what the buyer pays for is not the disc. The Court agreed that there is no distinction between branded and unbranded software but found no error in the High Court's holding that branded software is goods, and expressly expressed no opinion on unbranded software.
The Court's route was through the width of the definition rather than through the nature of software. 'Goods' is not a term of art and its meaning varies from statute to statute; here both the Act and Article 366(12) define it inclusively to take in all materials, commodities and articles, and an inclusive definition is of wide amplitude. Definitions from other statutes, the Copyright Act in particular, cannot be read in, because those Acts are not in pari materia and there is neither incorporation nor reference. The controlling test came from the electricity cases: in Madhya Pradesh Electricity Board, and again in the Constitution Bench decision in National Thermal Power Corporation, electricity was held to be goods because movable property for sales tax purposes cannot be read narrowly, and electricity can be abstracted, consumed, used, transmitted, transferred, delivered, stored and possessed. Software, both canned and uncanned, has all of those attributes. The customs decision in Associated Cement Companies was treated as directly in point: drawings, designs and discs carrying technical material are goods, and it is a misconception to say that what is taxed is the intellectual input, since what is taxed is the final product whose value the input has enhanced. Foreign authority went both ways, but the Court noted the shift in the American cases away from treating software as intangible property, and adopted the reasoning in Advent Systems that a programme, once implanted in a medium, is tangible, movable and available in the marketplace. In the words reproduced by the source cited on this page: "But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax."
It was decided by the Supreme Court on 2004-11-05 and is reported as Civil Appeal No. 2582 of 1998, with Civil Appeal Nos. 2584, 2585 and 2586 of 1998 (Supreme Court of India). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On the sections in issue, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed with no order as to costs. The Court held that 'goods' as used in Article 366(12) and as defined in the State Act is very wide and includes all types of movable property, whether tangible or intangible. A software programme may consist of commands enabling a computer to perform a designated task, and the copyright in it may remain with its originator, but the moment copies are made and marketed it becomes goods susceptible to sales tax. Intellectual property, once put on a medium - books, canvas, discs or cassettes - and marketed, becomes goods; the Court saw no difference between the sale of a programme on a disc and the sale of music or a film on a cassette or CD. The software and the media cannot be split up, and what the buyer pays for is not the disc. The Court agreed that there is no distinction between branded and unbranded software but found no error in the High Court's holding that branded software is goods, and expressly expressed no opinion on unbranded software. It arises in How Tax Law Is Read matters, on the relevant sections of the Income Tax Act 1961, and was decided by Supreme Court of India - N. Santosh Hegde, S.N. Variava, B.P. Singh, H.K. Sema and S.B. Sinha JJ; judgments delivered by S.N. Variava J and S.B. Sinha J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the item against the attributes the Court used - abstraction, consumption, use, transmission, transfer, delivery, storage and possession. Do not import a definition from the Copyright Act or another statute; the Court held that a definition in one Act does not govern another that is not in pari materia. Treat the position of unbranded or bespoke software as open, since the Court expressly declined to decide it.
Still good law. A five-judge bench decision that the source page records as followed in a large number of later cases. Nothing in the harvested text suggests it has been doubted. Its later history was not separately traced in this session. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The library had carried a second page for this same judgment at /caselaw/case/tata-consultancy-services-v-state-of-andhra-pradesh/; the two have been merged and that address now redirects here. This is a sales tax judgment under the Andhra Pradesh General Sales Tax Act, 1957 and Article 366(12) of the Constitution. It decides nothing under the Income-tax Act, 1961, so the sections field is empty; the batch's suggestion of section 9(1)(vi) does not come from the judgment. About 34,000 characters from the middle of the text are missing, covering the later part of S.B. Sinha J's survey of foreign authority and the opening of the second judgment, so what is written above is drawn from the parts present, which include the conclusions of both judgments. The harvested page carries no reporter citation, so the case numbers from the first page are given instead. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with no order as to costs. The Court held that 'goods' as used in Article 366(12) and as defined in the State Act is very wide and includes all types of movable property, whether tangible or intangible. A software programme may consist of commands enabling a computer to perform a designated task, and the copyright in it may remain with its originator, but the moment copies are made and marketed it becomes goods susceptible to sales tax. Intellectual property, once put on a medium - books, canvas, discs or cassettes - and marketed, becomes goods; the Court saw no difference between the sale of a programme on a disc and the sale of music or a film on a cassette or CD. The software and the media cannot be split up, and what the buyer pays for is not the disc. The Court agreed that there is no distinction between branded and unbranded software but found no error in the High Court's holding that branded software is goods, and expressly expressed no opinion on unbranded software.
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