| Causing ripples of apprehension
in the IT industry, the Supreme Court on Friday ruled
that off-the-shelf computer software is liable to tax
under the provisions of the Sales Tax Act.
The verdict was in response to a petition filed by
software major Tata Consultancy Services, challenging
an Andhra Pradesh High Court order that permitted levy
of sales tax on computed software, classifying it as
"goods" under the Sales Tax Act.
The ruling will, at best, be a shot in the arm for
state revenues, but is unlikely to adversely impact
the software industry. The apex court's directive relates
only to off-the-shelf software, which comprises a minuscule
portion of the software solutions market.
The software market is dominated by customised solutions.
For consumers, the price of software will increase,
especially in states where sales tax has not been imposed
on software so far.
A five-judge bench comprising Justice N Santosh Hegde,
Justice SN Variava, Justice BP Singh, Justice HK Sema
and Justice SB Sinha upheld the Andhra Pradesh HC order.
The apex court held that when a person goes to buy a
CD containing the software, he does not pay only for
the CD, but for the software contained in the CD.
Appearing for TCS, senior advocate Soli J Sorabjee
and advocate Sanjib Sen contended that software is nothing
but knowledge and hence, could not be categorised as
"goods".
However, it is the contention of the state of Andhra
Pradesh, which levied the sales tax, that off-the-shelf
software cannot be treated as "knowledge",
making it liable for sales tax under the Act.
Reacting to the development, Nasscom president Kiran
Karnik said the IT association is yet to obtain a copy
of the judgement. Hence, it has not yet ascertained
if all kinds of software will be liable to sales tax,
or whether it will be restricted to "off-the-shelf"
software.
Mr Karnik said, "We are aware of the move to integrate
the tax on all goods and services, and the movement
towards VAT. In this context, the long-range scenario
will not be affected by this judgement. Immediately,
however, it may impact the price paid by the user, which
could affect the speed of penetration of PCs in the
country and also help proliferation of pirated software."
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