No excise duty on software in computers: SC

The Supreme Court has held that no central excise duty is payable on software loaded in computers, dismissing the central government's appeal and granting relief to computer manufacturers.

The excise department had argued that operational software implanted in hardware became a part of the latter and therefore excise duty was chargeable on the total value of the computer.

It maintained that software implanted with a licence to the right to use the information contained in them should not be compared with a disc, floppy or CD-Rom available in the market separately. The Supreme Court rejected this viewpoint.

The three-judge bench headed by Justice Santosh Hegde, upholding the arguments of Acer India and other computer manufacturers, explained that computer and operative software are different marketable commodities.

They are available in the market separately. They are also classified separately for tariffs.

The rate of excise duty for computers is 16 per cent whereas duty on the software is nil.

Accessories of a machine promote the convenience and better utilisation of the machine. But they are not the machine itself, the judgment written by Justice S B Sinha said.

Although a computer may not be capable of effective functioning unless loaded with software, that fact would not bring them within the purview of the part of the computer so as to hold that if they are sold along with the computer, their value must form part of the assessable value for the purpose of excise duty, the court ruled.

It further emphasised that the information contained in software, did not lose its value and was still marketable as a separate commodity. It does not lose its character as a tangible item being of the nature of CD-ROM.

A licence to use the information contained in a software can be given irrespective of the fact whether it is loaded in the computer or not. The fact that manufacturers put different prices for the computers loaded with different types of operational software would not make any difference as regards the nature and character of the computer.

The computer firms had earlier succeeded in their appeal to the Customs, Excise and Service Tax Appellate Tribunal in Bangalore.

Affirming the view of the tribunal, the Supreme Court concluded that when an exemption has been granted from the levy of the duty on software, whether operating software or application software in terms of the tariffs, no excise duty can be levied on them indirectly.