05 November 2004
Supreme Court
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TATA CONSULTANCY SERVICES Vs STATE OF A P

Case number: C.A. No.-002582-002582 / 1998
Diary number: 10554 / 1997
Advocates: MANIK KARANJAWALA Vs MOHAN PRASAD MEHRIA


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CASE NO.: Appeal (civil)  2582 of 1998

PETITIONER: Tata Consultancy Services                                        

RESPONDENT: State of Andhra Pradesh                                          

DATE OF JUDGMENT: 05/11/2004

BENCH: S.B. Sinha

JUDGMENT: J U D G M E N T WITH

CIVIL APPEAL NOs. 2584, 2585 & 2586/98

S.B. SINHA, J :

INTRODUCTION:

       Whether an intellectual property contained in floppies, disks or CD- ROMs would be ’goods’ within the meaning of Andhra Pradesh General  Sales Tax Act, 1957 (hereinafter called as ’the Act’) is the question involved  in this appeal which arises out of a judgment and order dated 12th December,  1996 passed by the Andhra Pradesh High Court.

"Goods" : Meaning         The said expression has been defined in Section 2(b) to, inter alia,  mean all kinds of moveable property and includes all materials, articles and  commodities. The amplitude of the said expression is required to be  considered with a  view to answer the question involved in this appeal.

       The expression ’goods’ is not a term of art.  Its meaning varies from  statute to statute.  The term ’goods’ had been defined in the Act as also in  Clause (12) of Article 366 of the Constitution to include all materials,  commodities and articles. Commodity is an expression of wide connotation  and includes every thing of use or value which can be an object of trade and  commerce.   

       In Jagir Singh and Others Vs. State of Bihar and another, etc. etc.,  AIR 1976 SC 997] it is stated:

"20. The general rule of construction is not only to  look at the words but to look at the context, the  collocation and the object of such words relating to  such matter and interpret the meaning according to  what would appear to be the meaning intended to  be conveyed by the use of the words under the  circumstances.  Sometimes definition clauses  create qualification by expressions like "unless the  context otherwise requires"; or "unless the  contrary intention appears"; or "if not inconsistent  with the context or subject-matter".  "Parliament  would legislate to little purpose", said Lord  Macnaghten in Netherseal Co. v. Bourne, (1889)  14 AC 228, "if the objects of its care might  supplement or undo the work of legislation by  making a definition clause of their own.  People

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cannot escape from the obligation of a statute by  putting a private interpretation on its language."   The courts will always examine the real nature of  the transaction by which it is sought to evade the  tax."

       In Words and Phrases, Volume 7A, Permanent Edition at page 590,  ’commodity’ has been defined as under:

"A "commodity" is an article of trade, a movable  article of value; something that is bought and sold.  U.S. v. Sischo, D.C. Wash., 262 F. 1001, 1005.

The term "commodity" includes every movable  thing that is bought or sold except animals.   Peterson v. Currier, 62 III. App. 163.

"Commodity" meaning that which affords  convenience or advantage, especially in  commerce, including everything movable which is  bought and sold. McKeon v. Wolf, 77 III. App.  325."

The definition of ’goods’ in Sales of Goods Act is also of wide  import which means every kind of movable property.  Property has been  defined therein to mean the general property in goods and not merely a  special property.  It is not much in dispute that ’goods’ would comprehend  tangible and intangible properties, materials, commodities and articles and  also corporeal an incorporeal materials, articles and commodities. If a  distinction is sought to be made between tangible and intangible properties,  materials, commodities and  articles and also corporeal and incorporeal  materials, the definition of goods will have to be rewritten of comprising  tangible goods only which is impermissible.  This Court, therefore, will have  to confine itself to the question as to whether the concerned software would  come within the purview of "goods".  In the Constitution, goods as such is  not defined.  An expansive definition with the said expression has been  given which is indicated by the expression "includes".  Such an expression is  also of wide amplitude.  [See Pradeep Kumar Biswas Vs. Indian Institute of  Chemical Biology, (2002) 5 SCC 111, para 5 & 6].

       When the word ’includes’ is used in an interpretation clause, it must  be construed as comprehending not only such things as they signify  according to their nature and import but also those things which the  interpretation clause declares that they shall include.  [See Scientific  Engineering House Pvt. Ltd. Vs. Commissioner of Income-tax, Andhra  Pradesh  (1986) 1 SCC 11].            

RE: SUBMISSION OF BEHALF OF THE APPELLANT         Reference by Mr. Sorabjee to the provisions of Copyright Act, in my  opinion, was not apposite.   

       Copyright Act and the Sales Tax Act are also not statutes in pari  materia and as such the definition contained in the former should not be  applied in the latter.  [See Jagatram Ahuja Vs. Commr. of Gift-tax,  Hyderabad AIR 2000 SC 3195, p. 3201]

       In absence of incorporation or reference, it is trite that it is not  permissible to interpret a word in accordance with its definition in other  statute and more so when the same is not dealing with any cognate subject.   [See State of Kerala Vs. Mathai Verghese & Ors.  (1986) 4 SCC 746, p. 753  and Feroze N. Dotivala Vs. P.M. Wadhwani & Ors. (2003) 1 SCC 433, p.  442]

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       It may not be necessary for us to rely upon the decisions of this Court  in H. Anraj Vs. Government of T.N. [(1986) 1 SCC 414] the correctness  whereof has been doubted in Sunrise Associates Vs. NCT of Delhi [(2000)  10 SCC 420].  It is also not necessary to rely upon the Australian decision,  Pont Data Australia Pty Ltd. Vs. ASX Operations Pty Ltd. & Anr. [1990  (93) Australian Law Reports 523] which is said to have been reversed in Re:  ASX Operations Pty Ltd. and Australian Stock Exchange Ltd. and Pont Data  Australia Pty Ltd.[FED No. 710 Trade Practices (1991) ATPR para 41-069  97 ALR 513/19 IPR 323 27 FCR 460.

       However, we may notice that the Federal Court of Australia while  reversing the judgment was of the opinion that as the definition of ’goods’  contained in Sub-Section (4) of Section 4 of the TP Act included gas and  electricity, the same would not be held to mean further including "encoded  electrical impulses".  It was, however, noticed:

"We should add that in Toby Constructions  Products Pty Ltd. v Computa Bar (Sales) Pty Ltd.  (1983) 2 NSWLR 48, Rogers J. held that a sale of  a computer system, comprising both hardware and  software, was a sale of "goods" within the  meaning both of the Sale of Goods Act 1923  (N.S.W.) and the warranties implied by Part V of  the TP Act.  His Honour said (supra) at 54), with  reference to United States authorities, that he did  not wish it to be thought he was of the view that  software by itself may not be "goods".  This is a  question which is left open after the present  appeal, which, as will be apparent, has decided a  narrower point."

       The standard works on software by Mr. Rahul Matthan and Mr. Roger  S. Pressman, relied upon by Mr. Sorabjee, may be relevant for proper  understanding as to what a software is and what is the nature and character  of software and in ordinary parlance may contrast a book, ordinary video or  audio cassette but it is well settled that the applicability of the statute would  depend upon its purport and object.  Taxability of a software has its history  in other countries.  Its journey in American courts started in the Seventies.   There had been a difference of opinion in different jurisdictions as regards  taxability of the software.  The majority of the courts held that it is  intangible property, but the Federal Supreme Court said that it is not so.  The  State Legislatures made amendments as a result whereof a shift in the  approach started.  Having regard to the changes in definition even the  American Courts began holding that tax can be imposed on such softwares.

       In Advent Systems Ltd. vs. Unisys Corpn, 925 F. 2d 670 (3rd Cir.  1991), relied on by Mr. Sorabjee, the court was concerned  with  interpretation of uniform civil code which "applied to transactions in goods".   The goods therein were defined as "all things (including specially  manufactured goods) which are moveable at the time of the identification for  sale".    It was held :

"Computer programs are the product of an intellectual  process, but once implanted in a medium are widely  distributed to computer owners.  An analogy can be  drawn to a compact disc recording of an orchestral  rendition.  The music is produced by the artistry of  musicians and in itself is not a "good," but when  transferred to a laser-readable disc becomes a readily  merchantable commodity.  Similarly, when a professor  delivers a lecture, it is not a good, but, when transcribed  as a book, it becomes a good.

That a computer program may be copyrightable as

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intellectual property does not alter the fact that once in  the form of a floppy disc or other medium, the program  is tangible, moveable and available in the  marketplace.   The fact that some programs may be tailored for  specific purposes need not alter their status as "goods"  because the Code definition includes "specially  manufactured goods."

The topic has stimulated academic commentary with  the majority espousing the view that software fits  within the definition of a "good" in the U.C.C.    

Applying the U.C.C. to computer software transactions  offers substantial benefits to litigants and the courts.   The Code offers a uniform body of law on a wide range  of questions likely to arise in computer software  disputes: implied warranties, consequential damages,  disclaimers  of liability, the statute of limitations, to  name a few.

The importance of software to the commercial world  and the advantages to be gained by the uniformity  inherent in the U.C.C. are strong polity arguments  favoring inclusion.  The contrary arguments are not  persuasive, and we hold that software is a "good"  within the definition in the Code."

       In Colonial Life Insurance Co. vs. Electronic Data Systems Corp. 817  F. Suppl. 235 (supra), Advent Systems Ltd. (supra) was followed.                  Linda A. Sharp, J.D., in an Article titled "Computer Software or  Printout Transactions as subject to  State Sales or Use Tax", published in 36  ALR 5th 33, noticed the development of law as well as technological  development of computers and opined that a tape containing a copy of a  canned programme does not lose its tangible character  because its content is  a reproduction of the product of intellectual effort just as the phonorecord  does not become intangible because it is a reproduction of the product of  artistic effort.  The learned author referred to a large number of case laws  wherein such a statement of law was enunciated.  In the article various  statutes defining software as tangible goods  had also been taken notice of.

       Strong reliance has been placed by Mr. Sorabjee on a judgment of  Illinois Supreme Court in First National Bank of Springfield vs.  Department  of Revenue, [421 N.E.2d 175, 85 III2d 84, 421 NE2d 175], wherein software  was held to be intangible personal property on the premise :

       "The tapes were certainly not the only medium  through which the information could be transferred.  In  this way, the tapes differ from a movie film, a  phonograph record or a book, whereby the media used  are the only practicable ways of preserving  those  articles.  Thus, while those articles and the apes are  similar in that they physically represent the transfer of  ideas or artistic processes, whereas computer programs  are separable from the tapes.  Not only may software  information be conveyed any number of ways, but it may  even be copied off of the tapes and stored, sing another  medium. (see Bryant & Mather, Property Taxation of   Computer Software, 18 N.Y.L.F. 59, 67 (1972).  In short,  it is not the tapes which are the substance of the  transaction is, in instance, the transfer of intangible  personal property and, as such, is not taxable. Under the  Illinois Use Tax Act\005."

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       The said decision was rendered in 1981.  However, subsequently in  Comptroller of the Treasury vs. Equitable Trust Company [464 A.2d 248],  an earlier decision of the  Tennessee Court in Commerce Union Bank vs.  Tidwell, [538 *473 S.W.2d 405], as also First National Bank of Springfield  (supra), were considered wherein it was observed :

"We can take judicial notice, based on modern human  experience, that the technology, exists for producing a  copy of a movie film on disc, of a phonograph record on  tape, and of a book on microfiche.  We have previously  discussed how the program copy is not separated  from  the tape, when it is used in the computer.  See B.U. Note,  supra, at 188-89.  To remove the program copy from the  magnetic tape requires that it be overwritten, or  obliterated in a magnetic field, in the way in which one   dictating on tape makes corrections or wipes the tape  clean."

       Thus, the court found a change in the concept and noticed a departure  from earlier view that the computer software was intangible property.  The  argument of severability which had held the field was also negatived.  Noticing several other judgments, it was held :

       "What is troublesome about (the tax court)  approach is the fact that, while a substantial portion of  the software is of a tangible nature, i.e. punched cards,  magnetic tapes, instructions covering operation or  applications, (for property tax purposes)  the remainder  consists of personal services to be rendered after  purpose\005."

                In the aforementioned premise, it also negatived the contention which  incidentally has been raised by Mr. Sorabjee  that the price paid for a copy  of a canned programme reflects the cost of developing the programme which  the proprietor hopes to recover, with profit, by spreading the cost among its  customers, stating :

"\005Simply because the canned program on tape is much  more expensive than the typical phonorecord, the  program tape is not any less tangible."  

In Compuserve, INC vs. Lingley [535 N.E. 2d 360], the court  disagreed  with the opinions contained in the earlier judgments and stated  the law in the following terms :

"\005Thus, the essence of the transaction in the sale  of computer software was  the purchase of nontaxable  intangible information.  The Missouri Supreme Court in  James and the Texas Court of Civil Appeals in First  National Bank of Fort Worth also used an essence-or-  purpose-of- the-transaction test to determine that  computer software is intangible property.

The Supreme Court of Ohio in Interactive  Information Systems, Inc. vs. Limbach (1985), 18 Ohio  st. 3d 309, 311, 18 OBR 356, 357-358, 480 N.E. 2d 1124,  1126, in determining the taxability of computer hardware  also recognized that computer programs are intangible  property when the court stated :

       "\005Prior to encoding the tape, the

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appellee is dealing with intangibles-ideas, plans,  procedures, formulas, etc.; and, although these  intangibles are in some respects transformed or  converted (or ’organized’) into a different state or  form, such transformation or conversion is not  ’manufacturing’ because no ’material or thing’ has  been transformed or converted." (Emphasis sic.)

The Supreme Court of Ohio also distinguished that  the tapes were tangible, while the computer information  was intangible.

The courts that have found computer software to  be tangible have based their decisions on the fact that the  computer program was coded on a tangible medium, such  as a computer tape.  See Citizens & Southern Systems,  Inc. vs. South Carolina Tax Comm. (1984), 280   S.C.  138, 311 S.E. 2d 717; Hasbro Industries, Inc. vs. Norberg  (R.I. 1985), 487 A.2d 124; Chittenden Trust Co. v. King  (1983), 143 Vt. 271, 465 A.2d 1100; and Comptroller of  the Treasury v. Equitable Trust Co. (1983), 296 Md. 459,  464 A.2d 248 (finding that only noncustomized   computer software is tangible property)."

It is true that in Compuserve, Inc. (supra), the court found that the  computer software developed by the appellants therein was intangible  property, but a perusal of the said judgment shows the other views of the  other courts were noticed therein wherein computer software was held to be  a tangible property on the ground that the computer programme was coded  on a tangible medium such as a computer tape.

Northeast Datacom, Inc. et al. vs. City of Wallingford  [212  Conn.639, 563 A2d 688, was rendered on the premise of the severability  doctrine.  The said judgment, however,  was  rendered keeping in view the  statute levying tax on personal property wherein the phrase "tangible  personal property’ was added by amendment in 1961 by Public Act 61 No.  24.

In South Central Bell Telephone Co. v. Sidney J. Barthelemny, et al.  [643 So. 2d 1240 : 36 A.L.R. 5th 689], the Supreme Court of Louisiana  noticed the definition of ’tangible personal property’ which was in the  following terms :       

"Personal property which may be seen, weighed,  measured, felt or touched, or is in any other manner  perceptible to the senses.  The term ’tangible personal  property’ shall not include stocks, bonds, notes or other  obligations or securities."

It was held : "The term "tangible personal property" set forth in  the City Code, and its synonymous Civil Code concept  "corporeal movable", must be given their property  intended meaning.  Physical recordings of computer  software are not incorporeal rights to be comprehended  by the understanding.  Rather, they are part of the  physical world.  For the reasons set out below, we hold  the computer software at issue in this case constitutes  corporeal property under out civilian concept of that  term, and thus, is tangible personal property, taxable  under ’ 56-21 of the City Code."

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The court, however,  noticed that the shift in the trend was not  uniform.  Having regard to the fact that the computer software became the  knowledge and understanding and upon discussing the characteristics of  computer software and classification thereof as tangible or intangible under  Louisiana law, it was held :

"The software itself, i.e. the physical copy, is not  merely a right or an idea to be comprehended by the  understanding.  The purchaser of computer software  neither desires nor receives mere knowledge, but rather  receives a certain arrangement of matter that will make  his or her computer perform a desired function.  This 13  arrangement of matter, physically recorded on some  tangible medium, constitutes a corporeal body.

We agree with Bell and the court of appeal that the  form of the delivery of the software-magnetic tape or  electronic transfer via modem- is of no relevance.    However, we disagree with Bell and the court of  appeal  that the essence or real object of the transaction was  intangible property .  That the software can be transferred  to various media i.e. from tape to disc, or tape to hard  drive, or even that it can be transferred over the telephone  lines, doles not take away from the fact that the software  was ultimately recorded and stored in physical form upon  a physical object.  See Crockett, supra, at 872-74; Shontz,  at 168-70; Cowdrey, supra, at 188-90.  As the court of  appeal explained, and as Bell readily admits, the  programs cannot be utilized by Bell until they have been  recorded into the memory of the electronic telephone  switch.  93-1072, at p. 6, 631 So.2d at 1342.  The essence  of the transaction was not merely to obtain the  intangible  "knowledge" or "information", but rather, was to obtain  recorded knowledge stored in some sort of physical form  that Bell’s computers could use.  Recorded as such, the  software is not merely an incorporeal idea to be  comprehended, and would be of  no use if it were.   Rather, the software is given physical existence to make  certain desired physical things happen.

One cannot escape the fact that software, recorded  in physical form, becomes inextricably intertwined with,  or part and parcel of the corporeal object upon which it is  recorded , be that a disc, tape, hard drive, or other device.   Crockett, supra, at 871072; Cowdrey, Supre, at 188-90.   That the information can be transferred and then  physically recorded on another medium is of no moment,  and does not make computer software any different than  any other type of recorded information that can be  transferred to another medium such as fil, video tape,  audio tape, or books."

It was further opined :

"It is now common knowledge that books, music,  and even movies or other audio/visual combinations can  be copied from one medium to another.  They are also all  available on computer in such forms as floppy disc, tape,  and CD-ROM.  Such movies, books, music, etc\005.can all  be delivered by and/or copied from one medium to  another, including electrical impulses with the use of a  modem.  Assuming there is sufficient memory space  available in the computer hard disc drive such movies,

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books, music, etc\005.can also be recorded into the  permanent memory of the computer such as was done  with the software in this case.

93-1072, at p. 4, 5. 631 So.2d at 1346-47  (dissenting opinion).  See also Shontz. Supra, at 168-170;  Harris, supra, at 187.

That the information, knowledge, story, or idea,  physically manifested in recorded form, can be  transferred from one medium to 15 another does not  affect the nature of that physical manifestation as  corporeal, or tangible.  Shontz, supra, at 168-170.   Likewise, that the software can be transferred from 1248  one type of physical recordation, e.g., tape, to another  type, e.g., disk or hard drive, does not alter the nature of  the software, Shontz, supra, at 168-170; it still has  corporeal qualities and is inextricably intertwined with  a  corporeal object.  The software must be stored in  physical form on some tangible object somewhere\005"

Reversing the findings of the court below that the computer software  constitutes intellectual property, it was opined :

"In sum, once the "information" or "knowledge" is  transformed into physical existence and recorded in  physical form, it is corporeal property.  The physical  recordation of this software  is not an incorporeal right to  be comprehended.  Therefore we hold  that the switching  system software and the data processing software  involved here is tangible personal property and thus is  taxable by the City of New Orleans."

St. Albans City : Mr. Sorabjee submitted that this Court Associated Cement Companies  Ltd. Vs. Commissioner of Customs [(2001) 4 SCC 593] has misapplied the  principles contained in St. Albans City and District Council Vs. International  Computers [1996 (4) All ER 481].

       Our attention in this behalf has been drawn to the judgment of Sir Iain  Glidewell which is in the following terms:

"During the course of the hearing, the word  ’software’ was used to include both the (tangible)  disk onto which the COMCIS program had been  encoded and the (intangible) program itself.  In  order to answer the question, however, it is  necessary to distinguish between the program and  the disk carrying the program.

       In both the Sale of Goods Act, 1979, s 61,  and the Supply of Goods and Services Act 1982,  s.18, the definition of goods includes ’all personal  chattels other than things in action and money’.   Clearly, a disk is within this definition.  Equally  clearly, a program, of itself, is not."

       As regard utility of an instruction manual, it was observed:

"As I have already said, the program itself is not  ’goods’ within the statutory definition.  Thus a

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matter of the program in the way I have described  does not, in my view, constitute a transfer of  goods.  It follows that in such circumstances there  is no statutory implication of terms as to quality or  fitness for purpose."

       The question which arose in that case was as to whether the defendant  therein had breached its contract to supply the plaintiffs with a computer  system to be used in administering their collection of community charge by  providing valid software which significantly overstated the relevant  population of their area and, thus, caused them to suffer a loss of revenue.   The suit for damages was allowed.  It was held by the Court of Appeals that  the submission on behalf of the appellant was that the question as to whether  as between the plaintiffs and the defendant the plaintiffs dealt as consumer  or on the defendant’s written standard terms of business within Section 3(1)   in the light of the definition of ’business’ in Section 14 was answered in the  negative on the ground that one cannot be said to deal on another’s standard  terms of business, negotiate with those terms before entering into the  contract.

       Glidewell, J. noticed that in that case the evidence was that in relation  to many of the programme releases, an employee of ICL went to St. Albans’  premises where the computer was installed taking with him a disk on which  the new programme was encoded and himself performed the exercise of  transferring the programme into the computer.  The learned Judge despite  holding that the programme itself is not ’goods’ held that such term would  employ to all types of contracts that the programme will be reasonably  capable of achieving the intended purpose.   

       The definition of goods in the said Act does not merely include  personal chattels but all articles, commodities and materials.  The definition  of goods in the said Act was wider in term than in Sale of Goods Act, 1979  and the Supply of Goods and Services Act 1982.  Furthermore, here, we are  not concerned with a programme which is not a part of the disk but a  programme contained in a disk.   

Strict Interpretation or Literal Interpretation : We, in this case, are not concerned with the technical meaning of  computer and computer programme as in a fiscal statute plain meaning rule  is applied.  [See Partington Vs. Attorney-General, (1869) LR 4 HL 100, p.  122]

       In interpreting an expression used in a legal sense, the courts are  required to ascertain the precise connotation which it possesses in law.

       It is furthermore trite that a court should not be over zealous in  searching ambiguities or obscurities in words which are plain.  [See Inland  Revenue Commissioner Vs. Rossminster Ltd. (1980) 1 All ER 80, p. 90]

       It is now well-settled that when an expression is capable of more than  one meaning, the Court would attempt to resolve that ambiguity in a manner  consistent with the purpose of the provisions and with regard to the  consequences of the alternative constructions. [See Clark & Tokeley Ltd.  (t/a Spellbrook) Vs. Oakes [1998 (4) All ER 353].

       In Inland Revenue Commissioners Vs. Trustees of Sir John Aird’s  Settlement [1984] Ch. 382, it is stated: "\005Two methods of statutory interpretation have at  times been adopted by the court.  One, sometimes  called literalist, is to make a meticulous  examination of the precise words used.  The other  sometimes called purposive, is to consider the  object of the relevant provision in the light of the  other provisions of the Act \026 the general

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intendment of the provisions.  They are not  mutually exclusive and both have their part to play  even in the interpretation of a taxing statute."           In Indian Handicrafts Emporium and Others Vs. Union of India and  Others [(2003) 7 SCC 589] this Court expounded the theories of purposive  construction.  [See also Ramesh Mehta Vs. Sanwal Chand Singhvi and Ors,  JT 2004 (Suppl.1) SC 274]                  Francis Bennion in his oft quoted treatise "Statutory Interpretation" at  pages 368 & 369 states:

"Subsection (2) Where the enactment is  grammatically ambiguous, the opposing  constructions put forward are likely to be  alternative meanings each of which is  grammatically possible.  Where on the other hand  the enactment is grammatically capable of one  meaning only, the opposing constructions are  likely to contrast an emphasized version of the  literal meaning with a strained construction.  In the  latter case the court will tend to prefer the literal  meaning, wishing to reject the idea that there is  any doubt.

Example 149.2 In a tax avoidance case concerning  capital transfer tax, the Court of Appeal were  called on to construe the Finance Act 1975 Sch 5  para 6(7) as originally enacted.  Counsel for the  Inland Revenue put forward several alternative  arguments on construction, but the court preferred  the one based on the unglossed literal meaning.  It  may be conjectured however that the other  arguments helped to convince the court that the  Inland Revenue’s case was to be preferred."

       A statute ordinarily must be literally construed.  Such a literal  construction would not be denied only because the consequence to comply  the same may lead to a penalty.  This aspect of the matter has been  considered by this Court in Indian Handicrafts Emporium (supra).   Proceeding on the basis that there existed a dichotomy, the Court ultimately  held that the resolution will have to be reached by reading the entire statute  as a whole. [See also Reema Aggarwal Vs. Anupam and Others, (2004) 3  SCC 199]   

       In Balram Kumawat Vs. Union of India and Others [(2003) 7 SCC  628] this Court held:

"The Courts will  reject that construction which  will defeat the plain intention of the Legislature  even though there may be some inexactitude in the  language used.  Reducing the legislation futility  shall be avoided and in a case where the intention  of the Legislature cannot be given effect to, the  Courts would accept the bolder construction for  the purpose of bringing about an effective result.   The Courts, when rule of purposive construction is  gaining momentum, should be very reluctant to  hold that Parliament has achieved nothing by the  language it used when it is tolerably plain what it  seeks to achieve."

Referring to its earlier decisions, this Court opined :

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"36. These decisions are authorities for the  proposition that the rule of strict construction of a  regulatory/penal statute may not be adhered to, if  thereby the plain intention of  Parliament to  combat crimes of special nature would be  defeated."

[See also Swedish Match AB & Anr. Vs. Securities & Exchange Board,  India & Anr., 2004 (7) SCALE 158]

       So long natural meaning for the charging section is adhered to and  when the law is certain, then a strange meaning thereto should not be given.   [See Indian Banks’ Association, Bombay and Ors. Vs. M/s. Devkala  Consultancy Services and Ors., JT 2004 (4) SC 587]         Although normally a taxing statute is to be strictly construed but when  the statutory provision is reasonable akin to only one meaning, the principles  of strict construction may not be adhered to.  [See Commnr. of Central  Excise, Pondicherry Vs. M/s. ACER India Ltd., 2004 (8) SCALE 169]          Determination : A software may be intellectual property but such personal intellectual  property contained in a medium is bought and sold.  It is an article of value.   It is sold in various forms like \026 floppies, disks, CD-ROMs, punch cards,  magnetic tapes, etc.  Each one of the mediums in which the intellectual  property is contained is a marketable commodity.  They are visible to senses.   They may be a medium through which the intellectual property is transferred  but for the purpose of determining the question as regard leviability of the  tax under a fiscal statute, it may not make a difference.  A programme  containing instructions in computer language is subject matter of a licence.   It has its value to the buyer.  It is useful to the person who intends to use the  hardware, viz., the computer in an effective manner so as to enable him to  obtain the desired results.  It indisputably becomes an object of trade and  commerce.  These mediums containing the intellectual property are not only  easily available in the market for a price but are circulated as a commodity  in the market.  Only because an instruction manual designed to instruct use  and installation of the supplier programme is supplied with the software, the  same would not necessarily mean that it would cease to be a ’goods’.  Such  instructions contained in the manual are supplied with several other goods  including electronic ones.  What is essential for an article to become goods  is its marketability.   

At this juncture, we may notice the meaning of canned software as  under:   

"(7) ’Canned ?software’?means that is not specifically  created for a particular consumer.  The sale or lease of, or  granting a license to use, canned software is not  automatic data processing and computer services, but is  the sale of tangible personal property.  When a vendor, in  a single transaction, sells canned software that has been  modified or customized for that particular consumer, the  transaction will be considered the sale of tangible  personal property if the charge for the modification  constitutes no more than half of the price of the sale."

[See STATE-CASE APP-CT,OH-TAXRPTR 402-978 Ohio Board of  Tax Appeals, Aeroquip Cop. Page 9 of 12]

The software marketed by the Appellants herein indisputably is  canned software and, thus, as would appear from the discussions made  hereinbefore, would be exigible to sales tax.

       It is not in dispute that when a programme is created it is necessary to  encode it, upload the same and thereafter unloaded.  Indian law, as noticed

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by my learned Brother, Variava, J., does not make any distinction between  tangible property and intangible property.  A ’goods’ may be a tangible  property or an intangible one.  It would become goods provided it has the  attributes thereof having regard to (a) its utility; (b) capable of being bought  and sold; and (c) capable of transmitted, transferred, delivered, stored and  possessed.  If a software whether customized or non-customized satisfies  these attributes, the same would be goods.  Unlike the American Courts,  Supreme Court of India have also not gone into the question of severability.

       Recently, in Commnr. Of Central Excise, Pondicherry Vs. M/s. ACER  India Ltd. [2004 (8) SCALE 169] this Court has held that operational  software loaded in the hard disk does not lose its character as tangible goods.

If a canned software  otherwise is ’goods’, the Court cannot say it is  not because it is an intellectual property which would tantamount to  rewriting the judgment.         In Madan Lal Fakirchand Dudhediya vs. Shree  Changdeo Sugar Mills Ltd. [(1962) Suppl. 3 SCR 973], this Court held that  the court cannot rewrite the provisions of law which clearly is the function  of the Legislature which interprets them.                    I respectfully agree with the opinion of Variava, J. that the appellant  herein is liable to pay sales tax on the softwares marketted by it and the  appeals should be dismissed.