For the information technology industry which has been, for some time, feeling desperate for some more revenue sops, here is good news. The CESTAT has ruled that Windows and additional/optional software cannot be treated as part of computer and subjected to central excise duty as the liability to pay duty is on computer and not on computer system.

The tribunal held that "a clear distinction exists between software that is a part of a computer (EEPROM, etc.) and software which is additional to such software. Windows and other software in question are of the latter type. They cannot be treated as part of computer and subjected to central excise duty. Commissioner's finding based on transaction value is also not correct.

"If a sale includes both the sale of computer and sale of software, only that portion of the transaction value which relates to sale price of computer is to form assessable value and not the entire consideration for the sale, because what is being subjected to excise duty is the computer and not the sale as such. Only the transaction value of the computer is relevant for levying excise duty on the computer and not the full sale price".

The appellants, HCL Info Systems Ltd, are manufacturers of computers. They pay central excise duty on the value of the computers at the rate applicable under tariff hearing 8471.00. They supply software also along with computers. The software is either loaded or is supplied separately. So is the manual of the software. Under the order impugned Commissioner of Central Excise, Pondicherry held that the appellants should discharge duty on the computers after including the value of the software also in the assessable value. Para 39(i) of the order states as under :

"39(i) That the value/cost of the operational software installed by the assessee on the computers before clearance from the factory is includible in the assessable value/transaction value of the computer system and therefore, the differential duty demanded in the two show cause notices need to be confirmed."

The contention of the appellant was that duty demand is entirely contrary to the settled law. They submitted that it is well settled that computer and computer system are different and what is subjected to duty under 84.71 is computers only and not computer systems. The learned Counsel for the appellant has stressed that Commissioner has confirmed the duty demand on account of confusing computers system with computers.

He has submitted that computer comes into existence and is complete and functional without the loaded operating software. The software that forms part of the computer is the software etched or burnt into the integrated circuit called electrically erasable programmable read only memory (EEPROM) that is soldered on to the mother board.

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