In a ruling that could affect the booming software industry, the Supreme Court on Friday ruled that computer software is liable to tax under the provisions of the Sales Tax Act.
The ruling, expected to give a little boost to the dwindling revenues of states, was given by a five-judge Constitution Bench comprising Justice N Santosh Hegde, Justice S N Variava, Justice B P Singh, Justice H K Sema and Justice S B Sinha on a petition filed by Tata Consultancy Services.
TCS had challenged an Andhra Pradesh High Court order allowing levy of sales tax on the computed software after classifying it as 'goods' under the provisions of the Act.
Upholding the high court order, the Apex Court said that when a person goes to buy a CD containing the software, he was not paying for the mere CD but for the software contained in the CD.
However, the impact would not be much on the industry as the ruling would be applicable only to the 'off-the-shelf' software and not the 'customised' ones. Ninety per cent of the software sales account for the latter category.
Appearing for TCS, senior advocate Soli J Sorabjee and advocate Sanjib Sen, contended that software was nothing but knowledge and hence could not be categorised as goods.
However, the state of Andhra Pradesh, which had levied the sales tax, had argued that the off-the-shelf software cannot be treated as 'knowledge' making it liable for sales tax under the Act.
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