Author: S.B.Theerthana, Chennai Dr.Ambedkar Government Law College –Puduppakam.
To the point
Software is a set of instructions or programs that tell a computer what to do.It helps us use the computer to do tasks like writing, drawing, calculating, or playing games.My Article about the case study of Tata Consultancy Service v State Of Andra Pradesh would clarify whether software is a goods? are not? Is software was physical object? Is software was a product?Is software was tangible or intangible?
Abstract
The Supreme court ruling in Tata Consultancy Service v State Of Andra Pradesh played virtual role in the digital economy.Where, its been a turing point in digital and legal world.This case has interperated the software.How the software was regonised as Taxable goods in india.The case defined whether canned software is pre packed and sold in physical form could be classified as goods and taxed according to Andra Pradesh General Sales Tax Act.The court has ruled that software was satisified the characterstics of goods,in form of usability,traferability,storability, and marketability.It clarified that intangiable nature of software does not exclude it from taxation if it is delivered in a tangible form.This ruling not only resovled the immediate tax issue but also given a broader legal framework governing digital product in india.
The Legal Jargon
The Supreme court held that Software when placed ob tangilble medium for example compact disk,it acquires the characterstics what a good posses like utility,transferability and marketing.By referring the ratio decidendi that the manner in the software is aligned with the feature of saleable products.The supreme court doesn’t agree that just because the software was intangiable in nature it should not be taxed.Relying the Doctrine of substance,the court reinforced that despites its intangible nature,can still fall within the ambit of taxable goods.the court clearly stated that inspite of nature it should be seen the importance of software.This ruling clarified the legislative intent behid the term goods and expanded its interpretation to include certain forms of intellectual property.
Proof
In this case,the Supreme Court Bench S.B.Sinha ruled that pre-packaged or canned software could be classified as goods under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957, as it possesses characteristics such as utility, transferability, and marketability. The Court reinforced its reasoning by referring to Article 366(12) of the Constitution of India, which defines “goods” broadly to include all kinds of movable property, thereby allowing such software to be brought within the ambit of sales tax.
Case Laws
1. Commissioner of Sales Tax, Madhya Pradesh v. Madhya Pradesh Electricity Board(1969)
The Court held that electricity qualifies as goods under sales tax law, as it can be transmitted, stored, and sold. The Electricity Board was deemed a dealer for supplying electricity commercially. However, the supply of steam to Nepa Mills was considered a works contract, not a sale, and was therefore not taxable. This case clarified that intangible items like electricity can be taxed if they have commercial utility.
2.H. Anraj v. Government of Tamil Nadu (1985)
Both the TCS V. State of Andra Pradesh and this case dealt with how the law looks at “goods” and taxes. In the Anraj case, the Court said that a state cannot charge higher tax on goods from another state, because it goes against the freedom of trade guaranteed by the Constitution.In the TCS case, the Court decided that even software can be treated as goods if it can be sold and has value. Both cases show how the courts try to make sure that tax laws are fair and that they don’t stop trade between states or ignore new kinds of goods like software.
3. State of Andhra Pradesh v. National Thermal Power Corporation Ltd (2002)
In this case, the Supreme Court said that the Andhra Pradesh government could not charge electricity duty on power that NTPC was selling to other states. The Court explained that since the power was being sold from one state to another, it was an inter-state sale, and only the central government has the right to tax such sales. The Court also said electricity is treated like goods, and NTPC should get back the tax it had already paid. This case made it clear that states cannot tax electricity sold outside their borders.
4. Associated Cement Companies Ltd. v. Commissioner of Customs (2001)
In this case, the Supreme Court had to decide whether technical documents like designs, manuals, and diskettes imported by Associated Cement Companies could be treated as goods and be charged customs duty. The company argued that these were just knowledge or intellectual property and not actual goods. But the Court held that since the information was brought into India on physical items like paper or diskettes, they counted as movable goods under the Customs Act. So, customs duty could be applied. The Court said that even if the main value is in the knowledge, as long as it comes in a physical form, it is still taxable as goods. This case clarified that intangible things become taxable goods when they are imported in physical form.
Conclusion
In this case, the main question was about how the goods sold by TVS, like spare parts and accessories, should be taxed under the state’s sales tax law. The court looked at whether these items fit into a specific category listed in the Act or should be taxed under a general category. It decided that if there is a specific category for a product, it should be used instead of a general one. The court also said that tax laws should be applied strictly and clearly. If there is any confusion or doubt in the law, it should go in favor of the taxpayer. This case became an important example for future tax-related cases because it showed how important it is to follow the exact wording of the law when deciding how goods should be taxed.
FAQs
1.what is canned software?
Canned software is readymade software that is developed for general use, not for any one specific person or company. It’s also called off-the-shelf software. Examples include Microsoft Word, Excel, or antivirus programs that anyone can buy and use. It’s already created and tested before being sold, and users just install it on their computers. Unlike custom software, it’s not made to fit one user’s special needs but is designed for the public to use for common tasks.
2.what is intangible?
Intangile means where you can’t touch and see actually like physical object.It’s not something solid like a book or a pen. Even if it comes on a CD or is downloaded.
3.what is ratio decidenti?
Ratio decidendi is a term used in law which means the main reason or principle behind a judge’s decision in a case. It is the part of the judgment that forms the legal rule and can be used as a precedent in future cases. Basically, it answers the question,Why did the court decide the case this way? It is different from the other parts of a judgment like examples or extra comments, which are not binding.
4.what is Doctrine of substance?
The Doctrine of Substance is a legal principle used to look beyond the form or appearance of something and understand its real nature or purpose. In tax law especially, this means that what matters is the actual substance of the transaction, not just how it is presented on paper.
5.What is Intellectual property?
Intellectual Propertyrefers to creations of the mind, like inventions, brand names, logos, designs, music, books, or software. It’s something you can’t physically touch, but it still has value because it comes from someone’s creativity or ideas. The law gives protection to these creations so that others can’t copy or use them without permission. Just like owning a house or a car, people can own their ideas too and this ownership is called intellectual property.
