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Central Excises and Salt Act, 1944: Section 5-A(1). Excise duty-Notification dated 1.3.1989-Exemption to computer 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-Computer-Software such as discs, floppies, CD-ROMs sold along with computers-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 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 exdse liability of the computer system had to be determined with reference to the computer system itself and for assessment of the computer system it was immaterial whether the software was a bought out item. In the assessment of the computer system an individual part lost its independent identity and became a part of the computer system. Against the judgments and orders of the Tribunal appeals were filed before this Court. Allowing the appeals and setting aside the impugned judgments and orders, this Court HELD : 1. In the first place, the Tribunal confused a computer system with a computer; what was being charged to excise duty was the computer. Secondly, that a computer and its software are distinct and separate is clear, both as a matter of commercial parlance as also upon the material on record. A computer may not be capable of effective functioning unless loaded with software such as discs, floppies and C.D. ROMs, but that is not to say that these are part of the computer or to hold that, if they are sold along with the computer, their value must form part of the assessable value of the computer for the purposes of excise duty. Thus, the value of software, if sold along with the computer, cannot be included in the assessable value of the computer for the purposes of excise duty. [272-A-B] Collector of Central Excise, Bangalore v. Sunray Computers Pvt. Ltd., (1988) 33 ELT 787, overruled. State of Uttar Pradesh v. M/s. Kores (India) Ltd., [1977] 1 SCR 837 and State of Mysore v. Kores (India) Ltd., (1970) 26 S.T.C. 87 (Mys.), referred to. Robert P. Biglow, Computer Contracts: Negotiating and Drafting Guide, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 491 of 1989 Etc.

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PETITIONER:
M/S PSI DATA SYSTEMS LTD.

 Vs.

RESPONDENT:
COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT: 17/12/1996

BENCH:
S.P. BHARUCHA, S.B. SEN

ACT:

HEADNOTE:

JUDGMENT:
 WITH
 (C.A. No.79/89 and C.A. No.6042/94)
 J U D G M E N T
 BHARUCHA. J.:
 These appeals against the judgments and orders of the
Customs, Excise and Gold (Control) Appellate Tribunal relate
to the assessable value of computers for the purposes of
excise duty. The appeals of M/s. Wipro information
Technology Limited (Civil Appeal No.491 of 1989) relate to
the tariff as it was prior to 28th. February, 1986. The
appeal or M/s. Tata Unisys Limited (Civil Appeal No. 6042 of
1994) relates to the present tariff under the Central Excise
Tariff Act, 1985.
 The question, principally, is in relation to the
inclusion of the value of software sold with the computer in
the assessable value thereof. It is not the contention of
the appellants that the firm or etched software that is
implanted into a computer is not to be taken into account in
the valuation thereof for the purposes of excise duty. It is
their case that the value of the software, such as discs,
floppies, C.D. rhoms and the like, that they may sell along
with the computer is not to be taken into account for the
aforesaid purpose.
 We make it clear at the outset that when we shall speak
of software, we shall be referring to tangible software of
the nature of discs, floppies and C.D. rhoms and not to the
intellectual property, also called software, that is
recorded or stored thereon.
 It is necessary, to start with, to make a distinction
between hardware, which is the computer, and the programming
necessary to run it, which is the software. (See Computer
Contracts Negotiating and Drafting Guide by Robert P.
Bigelow). "Software" has been stated in the same publication
to describe "programmes which consist of instructions
recorded on punched cards, magnetic tapes and discs. These
devices instruct the computer as to what functions it will
perform" to produce the desired output. In a judgment
delivered by the Supreme Court of Illinois in the case of
First National Bank of Springfield vs. The Department of
Revenue, it was observed:-
 "In the computer industry, computer
 hardware is the tangible part of
 the machinery itself. Software
 denotes the information loaded into
 the machine and the directions
 given to the machine (usually
 through the media of punch cards,
 discs or magnetic tapes as to what
 it is to do and upon what command.
 Software also may include
 counselling and expert engineering
 assistance furnished by the seller
 of software, as well as flow charts
 and instruction manual's.
 There are two basic types of
 software programs. An operational
 program controls the hardware and
 actually makes the machine operate.
 It is fundamental and necessary to
 the functioning of the hardware. An
 applicational program is designed
 to perform specific functions once
 the programming information is fed
 into the computer."
 Tariff Item 33DD of the earlier Tariff dealt with
"computers (including central processing units and
peripheral devices), all sorts".
 The present tariff deals with computes in Chapter 84.
Heading 84.71 reads thus:-
 "Automatic data processing machines
 and units thereof; magnetic or
 optical readers, machines for
 transcribing data on to data media
 in coded form and machines for
 processing such data, not elsewhere
 specified or included."
 Chapter Note 5(a) states:
 "5.(a) For the purposes of heading No.84.71, the
expression `automatic data processing machines' means:-
 (1) Digital machines, capable of
 (1) storing the processing
 programme of programmes and at
 least the date immediately
 necessary for the execution of the
 programme; (2) being freely
 programmed in accordance with the
 requirements of the user; (3)
 performing arithmetical
 computations specified by the user;
 and (4) executing, without human
 intervention, a processing
 programme which requires them to
 modify their execution by logical
 decision during the processing
 run;"
 Heading 85.24 deals with "records, tapes and other
recorded media for sound or other similarly recorded
phenomena, including matrices and masters for the production
of records and includes gramophone records, audio tapes,
audio cassettes, video tapes, video cassettes, magnetic
discs and other cassettes and discs". Chapter Note 6 states"
 "6. Records, tapes and other media
 of heading No. 85.23 or 85.24
 remain classified in those
 headings, whether or not they are
 cleared with the apparatus for
 which they are intended."
 For the sake of completeness, it must be noted that a
Notification dated 1st March, 1989, issued in exercise of
the powers conferred by Section 5A(1) of the Central Excises
and Salt Act, 1944, gives to "computer software falling
under Heading 85.24 of the Schedule to the Central Excise
Tariff Act, 1985," exemption from the whole as the excise
duty leviable thereon.
 The Tribunal in the judgments that are impugned
proceeded upon the basis that the appellants sold computer
systems and that a computer systems was incomplete without
systems software inasmuch as mere hardware without systems
software did not make the system workable. It relied upon
its earlier judgment in the case of collector of Central
Excise, Bangalore, vs. Sunray computers Private Limited,
(1988) 33 ELT 787, in this behalf. That judgment observed
that "without software the hardware was incomplete, a mere
dumb box and of no use at all to the customer. If there was
a single contract for the supply of a computer including
software the total value of the computer including that of
the software would have to be assessed to duty irrespective
of the fact whether the software part is supplied along with
the hardware or in a separate lot and irrespective of the
fact whether a single invoice is made for both hardware and
software or a separate invoice is made for the software."
The Tribunal held that the excise liability of the computer
system had to be determined with reference to the computer
system itself and for assessment of the computer system it
was immaterial whether the software was a bought out item.
In the assessment of the computer system an individual part
lost its independent identity and became a part of the
computer system.
 The appellants before us have sold only a computer, or
a computer along with software, and the software might have
been imported or bought out. Some contracts in this behalf
are lump-sum contracts and some are for the computer and the
software separately. Sample contracts are on the record.
 Learned counsel for the appellants submitted that the
test that had been applied by the Tribunal in the impugned
judgments was erroneous. Our attention was drawn to the
judgment of this Court in State of Uttar Pradesh vs. M/s.
Kores (India) Limited, (1977) 1 SCR 837, where it was held
that a typewriter ribbon was an accessory to a typewriter
and not a part of the typewriter, though it might not be
possible to type out any matter on the typewriter without
the ribbon. This Court quoted with approval the following
observation of the High Court of Mysore in State of Mysore
vs. Kores (India) Ltd.,:
 "Whether a typewriter ribbon is a
 part of a typewriter is to be
 considered in the light of what is
 meant by a typewriter in the
 commercial sense. Typewriters are
 being sold in the market without
 the typewriter ribbons and
 therefore typewriter ribbon is not
 an essential part of a typewriter
 so as to attract tax as per entry
 18 of the Second Schedule to the
 Mysore Sales Tax Act, 1957." <sle>
 On the same reasoning, it was submitted, the software
that was sold by the appellants along with their computers
was not an essential part of the computers. What a computer
was had to be judged in the light of its commercial sense
and, in that sense, the software was not understood to be a
part of the computer. Reference was made to Section 8OHHL of
the Income tax Act which provides for deduction of profits
from export of "computer software" Reference was also made
to the provisions of the Copyright Act, 1967, where a
computer is defined as including any electronic or similar
device having information processing capabilities and a
computer programme is defined to mean a set of instructions
expressed in words, codes, schemes or in any other form,
including a machine readable medium, capable of causing a
computer to perform a particular task or achieve a
particular result. Interestingly, the Copyright Act defines
`literary work' to include computer programmes, tables and
compilations including computer data bases. Reference was
also made to the aforementioned contracts which indicate the
distinction that buyers made between the computer and the
software.
 In the appeals of Wipro Information Technology Limited
and PSI Data Systems Limited, the charges for installation
of the computer and the training of the purchaser's
personnel to operate and maintain it were also included in
the assessable value of the computer, and the argument that
was advanced in respect of the value of the software was
also advanced in respect of these charges.
 Learned counsel for the respondent, fairly, did not
dispute that the value of the software that the appellants
might sell with their computers, if so ordered by the
purchasers thereof, could not be included in the assessable
value of the computers. He was, however, at pains to urge
that this did not apply to the firm software that was etched
into the computer; this is not even the appellants' case.
 In the first place, the Tribunal confused a computer
system with a computer; what was being charged to excise
duty was the computer.
 Secondly, that a computer and its software are distinct
and separate is clear, both as a matter of commercial
parlance as also upon the material on record. A computer may
not be capable of effective functioning unless loaded with
software such as discs, floppies and C.D. rhoms, but that is
not to say that these are part of the computer, their value
must form par of the assessable value of the computer for
the purposes of excise duty. To give an example, a cassette
recorder will not function unless a cassette is inserted in
it; but the two are well known and recognised to be
different and distinct articles. The value of the cassette,
if sold along with the cassette recorder, cannot be included
in the assessable value of the cassette recorder. Just so,
the value of software, if sold along with the computer,
cannot be included in the assessable value of the computer
for the purposes of excise duty.
 Having regard to the view that we take, it becomes
unnecessary to deal with the subsidiary arguments on behalf
of the appellants and the intervenor, M/s Digital Equipment
(India) Limited.
 The appeals are allowed and the judgments and orders
under appeal are set aside. There shall be no order as to
costs.

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