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SC ruling to hit IT sector: Nasscom

Our Bureau

New Delhi , Nov. 5

THE software industry on Friday said that the Supreme Court ruling classifying software as "goods" for the purpose of levy of sales tax is likely to increase the price paid by users, encourage pirated software and affect the speed of PC penetration in the country.

"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 judgment. Immediately, however, it may impact the price paid by the user and this could affect the speed of penetration of PCs in the country and also give an impetus to pirated software," Mr Kiran Karnik, President, National Association of Software and Service Companies (Nasscom), said.

Nasscom noted that earlier, the Andhra Pradesh High Court had held that software that was in the nature of "off-the-shelf" software was "goods" and that customised software would not qualify as goods for purposes of sales tax.

Nasscom said that it is yet to obtain a copy of the apex court judgment to ascertain whether all kinds of software would be liable to sales tax or whether it is restricted to "off-the-self" software.

According to Mr Deepak Ghaisas, Chief Executive Officer - India Operations and Chief Financial Officer, i-Flex, the move would make software more costly. "Already, the penetration of software and automation is low, and we need to encourage more and more organisations such as banks and financial institutions to get automated. This move will increase the cost of automation and could discourage companies from computerisation on a large scale."

Mr Ghaisas said that even in case of individual consumers, the product prices were likely to be impacted, thus encouraging piracy. "We will make an appeal to the Government but how many States can we approach?" he asked.

Infosys Technologies spokesperson in Bangalore declined to comment on the issue.

Earlier today, the Supreme Court held that the States had the power to levy sales tax on software.

A five-judge Constitution Bench headed by Mr Justice N. Santosh Hegde said that software were goods under the Sales Tax Act. This judgment was delivered on a petition filed by Tata Consultancy Services (TCS) challenging an Andhra Pradesh High Court order, which had also held software to be goods under the ST Act.

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