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Acer's `hard' bargain goes `soft'

D. Murali

Chennai , April 10

AMONG evergreen questions in taxation are the endless debates of capital vs revenue, and business vs personal expenditure. To these one may add the current imbroglio about hardware and software.

The Acer India Ltd case brought this tangle to the fore at the Supreme Court recently. The issue was simple: Should the price of software sold along with the computer hardware be included in the value for excise duty purposes?

A case that the company was happy to rely upon was a December 1996 judgment of the apex court in PSI Data System Ltd vs Collector of Central Excise. There, Mr Justice S.P. Bharucha and Mr Justice S.C. Sen had ruled: "A computer and its software are distinct and separate." They acknowledged that a computer may not function effectively unless loaded with software, "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."

To soften the jargon, they gave a simple 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 judges had said, the value of software, if sold along with the computer, cannot be included in the assessable value of the computer for duty purposes.

That was more than seven years ago, before the amendment to Section 4 of the Central Excise Act took place in 2000, bringing in the concept of transaction value in the place of `normal wholesale price.' The Acer judgment, therefore, cites the definition: "transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay... in connection with the sale."

Dissenting from the PSI Data Systems Ltd ruling, Mr Justice S.N. Variava and Mr Justice H.K. Sema, therefore, stated: "With greatest of respect, to the learned Judges concerned, we find ourselves unable to agree with the view that even though a computer may not function without a software, still that would not be part of a computer." There was more elaboration on the role of software: "Any amount which a buyer has to pay `by reason of or in connection with the sale' is part of the transaction value." There are software without which computer cannot work at all, said the judges.

"But a buyer has to buy software without which the computer cannot work. The computer would otherwise be a dead box, if software, without which the computer cannot work, is not purchased. When one talks of computer, as understood in the trade, it is not just the box or the hardware."

Therefore, they opined in favour of including the price of software in the value of computer.

However, no finality was reached on the issue because the judges felt, "The matter requires reference to a larger Bench." And added, "The papers may be placed before the Honourable Chief Justice of India for appropriate orders."

Even as the hard-soft question hangs fire, what is interesting is that the name of Mr V. Lakshmikumaran, Advocate, figures in both PSI and Acer cases. Only, he represented the Department earlier, while in the recent case, he argued for Acer.

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