COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY versus M/S. ACER INDIA LTD.

Citation: [2004] SUPP. 4 S.C.R. 676 · Decided: 24-09-2004 · Supreme Court of India · Bench: N. SANTOSH HEGDE · Disposal: Dismissed

Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY 
B 
v. 
MIS. ACER INDIA LTD. 
SEPTEMBER 24, 2004 
[N. SANTOSH HEGDE, S.B. SINHA AND 
TARUN CHATTERJEE, JJ.] 
Central Excise Act, 1944-Sections 3 and 4: 
C 
Central Excise Tariff Act, 1985-Heading 84. 71 and 85.24: 
D 
Excise duty-Levy of-On operational Software loaded in hardware-
Software exempted from duty-Held: Duty is not leviable on such software 
while it is not provided under Tariff Act-Computer and Software both are 
distinct and separate both·as a matter of comm~rcial parlance as also under 
the statute-Despite being loaded in the hardwarP. the software does not lose 
its character as is still marketable as a separate commodity. 
Interpretation of Taxing Statute: 
E 
Rule ~f Construction of Charging Section-Held: While interpreting 
F 
G 
taxing statute natural meaning of the language of the provision is to be seen 
and not the implication~uch statute demands strict construction-It should 
never be stretched against a tax payer-Principle of purposive construction 
to be adhered to when literal meaning result in absurdity-The interpretation 
should be user friendly. 
Interpretation of valuation or classification ·contained in Tariff Act-
Held: Meaning of an enlly should be explained in view of legal text in the 
Chapter Note-In the absence of its applicability general rules of interpretation 
should be adhered to. 
Maxim: 
"quando a liquid prohibetur fieri, prohibitur ex directo et per obliquim "-
Meaning of 
H 
Words and Phrases: 
676 
C.C.E. v. ACER INDIA LTD. 
677 
"Firmware" and "Operating System"-Meaning of 
Respondent is a Company manufacturing computers, and 
accessories falling under different headings of Chapter 84 of Schedule 
appended to Central Excise Tariff Act, 1985. Upon a licence, it also used 
A 
to load operational softwares. It used to deduct the value of the 
B 
operational software from the total value of the Computer, while 
calculating the amount of central excise payable thereupon. Appellant-
Revenue issued show cause notices to it demanding a differential duty 
on the premise that duty is payable on the entire value of the computer 
including the value of operational softwares. Revenue thereafter directed 
payment of differential duty. Customs, Excise and Service Tax Appellate 
C 
Tribunal allowed the appeal of the respondent relying on decision in PSI 
Data System Ltd. v. Collector of Central Excise, (1997] 2 SCC 78 holding 
that no duty is payable on a software loaded in a hardware. In appeal, 
Division Bench of this Court doubted the correctness of the judgment 
opining that as a computer would not function without an operational D 
software, the latter would form part of the former and thus excise duty 
would be payable on the total value thereof. Hence the matter was 
referred to the larger Bench. 
Appellant-Revenue contended that excise duty is leviable on the 
total value of the computer as operational software implanted in a 
E 
hardware becomes a part thereof; that the definition of "Transaction 
Value" as contained in Section 4(3)(d) of Central Excise Act, 1944 wvuld 
include the value of all manufactured goods charged as price including 
any amount that the buyer is liable to pay by reason of or in connection 
with the sale together therewith any other amount which adds to the 
value thereof. 
Respondent-assessee contended that operational softwares which 
are implanted on specific orders would retain the characteristics of 
software and would not lose its identity only because information 
contained therein together with the right to use the same is implanted 
in the computer itself; that· hardwares and softwares are classified 
separately under different h~adings viz. 84. 71 and 85.24 of the Customs 
Tariff Act; that in respect of computers rate of duty is 16% and for 
softwares it is nil and thus assessee was entitled to claim deduction of 
the value thereof from the total value of the computer; that as both the 
F 
G 
H 
678 
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R. 
A 
hardware and software are assessed separately, in view of Chapter Note 
6 of Chapter 85, which contains a legal text, the valuation of a computer 
and software cannot be clubbed together for the purpose of assessment. 
B 
Dismissing the appeals, the Court 
HELD: I.I. A duty of excise primarily is levied upon a manufacturer 
or producer in respect of the commodity manufactured or produced. It is 
a tax upon goods and not upon sales or the proceeds of sale 

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