MIS. PSI DATA SYSTEMS LTD. vs. COLLECTOR OF CENTRAL EXCISE

CIVIL APPEAL No. 491/1989Supreme Court1996 INSC 150317 December 1996Bench: 2 JudgesAuthor: S.P. BHARUCHA, S.C. SEN7 pages
AI SummaryAllowed

What were the facts?

The appeals before the Supreme Court concerned the inclusion of the value of software, such as discs, floppies, and CD-ROMs, sold along with computers, in the assessable value for excise duty. The Customs, Excise and Gold (Control) Appellate Tribunal had held that a computer system was incomplete without system software, and therefore, the value of software sold with a computer should be included in its assessable value. The Tribunal reasoned that in the assessment of a computer system, individual parts lose their independent identity and become part of the system. The assessee, PSI Data Systems Ltd. and others, argued that software sold with computers should not be considered an essential part of the computer in a commercial sense. The revenue contended that if a single contract existed for the supply of a computer including software, the total value should be assessed.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, setting aside the impugned judgments and orders of the Tribunal. The Court held that the Tribunal had confused a 'computer system' with a 'computer', and that excise duty was charged on the computer itself. The Court found that a computer and its software are distinct and separate, both in commercial parlance and based on the material on record. While a computer may require software for effective functioning, this does not make the software a part of the computer, nor does it necessitate the inclusion of the software's value in the assessable value of the computer for excise duty purposes. The Court drew an analogy with a cassette recorder and a cassette, stating that the value of the cassette sold with the recorder cannot be included in the recorder's assessable value. Consequently, the value of software sold along with a computer cannot be included in the assessable value of the computer for excise duty. The Court overruled its earlier judgment in Collector of Central Excise, Bangalore v. Sunray Computers Private Limited. Subsidiary arguments were rendered unnecessary by this finding.

What were the issues?

1. Whether the value of tangible software (discs, floppies, CD-ROMs) sold along with a computer is includible in the assessable value of the computer for the purposes of excise duty, under the Central Excises and Salt Act, 1944, and the Central Excise Tariff Act, 1985. Assessee's Arguments: - The software sold along with the computer is not an essential part of the computer in a commercial sense, drawing an analogy from the ruling in State of Uttar Pradesh v. M/s. Kores (India) Limited regarding typewriter ribbons. - The Income-tax Act (Section 80HHE) and the Copyright Act, 1967, distinguish between computers and computer software. - Contracts often treat computers and software as separate items. Revenue's Arguments: - The Tribunal's reasoning that a computer system is incomplete without system software and that individual parts lose their identity within the system was the basis of its decision. - The revenue also contended that if there was a single contract for the supply of a computer including software, the total value should be assessed, irrespective of separate invoicing.

Which sections of the Income-tax Act were involved?

Section 5-A(1),Section 80HHE

AI-generated summary — verify with the full judgment below

A MIS. PSI DATA SYSTEMS LTD. v. COLLECTOR OF CENTRAL EXCISE DECEMBER 17, 1996 B [S.P. BHARUCHA AND S.C. SEN, JJ.] Central Excises and Salt Act, 1944: Section 5-A(l).

Excise duty-Notification dated 1.3.1989-Exemption to computer C software falling under heading 85. 24. Central Excise Tariff Act, 1985: Schedule-Chapter 84 Headings 84.71 and 85.24-Note 5(a) and 6. Excise duty-Valuation-Computel'--Software such as discs, floppies, D CD-ROMs sold along with compute1~Value of such software held not in- cludible in assessable value of computers.

The question in these appeals is whether the value of software, such as discs, floppies, CD ROMs and the like (not the intellectual property . recorded or stored thereon), also called software, that is sold along with E the computer, was to be included in the assessable value of computers for the purposes of excise duty. The Customs, Excise and Gold (Control)

Appellate Tribunal proceeded upon the basis that the appellant-assessee . sold computer systems and that a computer system was incomplete without systems software inasmuch as mere hardware without systems software did not make the system workable. Accordingly it held that

The order continues below.

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