MIS. PSI DATA SYSTEMS LTD. versus COLLECTOR OF CENTRAL EXCISE

Citation: [1996] SUPP. 10 S.C.R. 266 · Decided: 17-12-1996 · Supreme Court of India · Bench: S.P. BHARUCHA, S.C. SEN · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
MIS. PSI DATA SYSTEMS LTD. 
v. 
COLLECTOR OF CENTRAL EXCISE 
DECEMBER 17, 1996 
B 
[S.P. BHARUCHA AND S.C. SEN, JJ.] 
Central Excises and Salt Act, 1944: Section 5-A(l). 
Excise duty-Notification dated 1.3.1989-Exemption to computer 
C 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-Computel'--Software such as discs, floppies, 
D CD-ROMs sold along with compute1~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 
E 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 
F 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. Against the judgments 
G 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 
H system with a computeri what was being charged to excise duty was the 
266 
PSI DATA SYSTEMS LTD. v. COLLECIDR OF CEN1RAL EXCISE [BHARUCHA, J.] 
'267 
computer. Secondly, that a computer and its software are distinct and A 
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. 
ROMsi 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 B 
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., C 
(1988) 33 ELT 787, overruled. 
State of Uttar Pradesh v. Mis. 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. 
From the Judgment and Order dated 2.11.88 of the Customs, Excise 
& Gold (control) Appellate Tribunal, New Delhi in F. No. EA. No. 
2387/85-A with E-Cross 23 of1986-A Final Order No. 543 of 1988-A. 
D 
E 
Atul Setalvad and D.A. Dave, Ravinder Narain, Amit Bansal, Ashok F 
Sagar, Sajan Narain, M.B. Gupta, and Amrita Mitra, for the Appellants. 
J. Vellapally, Y.P. Mahajan, V.K. Verma, P. Parmeswaran, V. 
Lakshmikumaran, V. Saridharan and V. Balachandran for the Respondent. 
The Judgment of the Court was delivered by 
BHARUCHA, J. These appeals against the judgment 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 
G 
of M/s. Wipro Information Technology Limited (Civil Appeal No. 79 of 
1989 and M/s. PSI Data Systems Limited (Civil Appeal No. 491 of 1989) H 
268 
SUPREMECOURTREPORTS(1996) SUPP. lOS.C.R. 
A relate to the tariff as it was prior to 28th. February, 1986. The appeal of 
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 
B 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
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