TATA CONSULTANCY SERVICES versus STATE OF ANDHRA PRADESH

Citation: [2001] 2 S.C.R. 359 · Decided: 13-03-2001 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Disposed off
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Judgment (excerpt)

TATA CONSULTANCY SERVICES 
v. 
STATE OF ANDHRA PRADESH 
MARCH 13, 2001 
[S. RAJENDRA BABU AND R.C. LAHOTI, JJ.] 
Sales Tax: 
Andhra Pradesh General Sales Tax Act, 1957: Section 2(h). 
Goods-Coniputer software-Sales Tax-Levy of-Whether development 
of customiSed computer sofilvare programmP.sfor a customer do not constitute 
computer and data .'Jrocessing se11•ices because the tn1e object of software 
development contract 1vas not to obtain the se111ices of the consultant, but to 
obtain software pmgrammes consisting of intangible intellectual pmpei1ywhich 
are not taxable-In view of the impot1ance of the mailer having global impli-
cations, 1-e,ferred ta a larger Bench. 
The High Court held that the computer software which were stand-
ardised and marketed for the use of certain classes of clients, like the 
Oracle, Lotus, Master Key, N-Export, Ex-Uuigraphics etc. were goods 
A 
B 
c 
D 
under Sc'Ction 2(h) of the Andhra Pradesh General Sales Tax Act, 1957 and 
E 
liable to sales tax. Hence this appeal. 
Disposing of the appeal, the Court 
HELD : 1. In the instant case, the question raised is whether develop-
ment of customised computer software programmes for a customer do not 
constitute computer and data processing services because the true object 
of software development contract is not to obtain the services of the con-
sultant, but to obtain software programmes consisting or intangible intel-
lectual property which are not taxable. [363-E] 
2. In view or the importance of the matter having global implications 
it is referred to a larger Bench. [364-E] 
PSI Data Systems Ltd. v. CCE, [1997) 2 SCC 78; Associated Cement 
Co. Ltd. v. Commissioner of Customs, JT (2001) 2 SC 141; Wal-Mart Stores, 
Inc. v. City of Mobile & County of Mobile, 200-622, Supreme Court of 
Alabama (1996), Advent Systems Ltd. v. UNISYS Corpn., 935 F 2d 670 
359 
F 
G 
H 
A 
B 
c 
D 
E 
F 
360 
SUPREME COURT REPORTS 
[2001] 2 S.C.R 
(3d Cir 1991); Beta Computers (Europe) l.Jd. v. Abode Systems (Europe) l.Jd., 
(1995); Commerce Union Bank v. Tidwe4 56-85 TN-Taxrptr-TB 200-279; 
Tennessee Supreme Coult, State of Alabama v. Central Computer Services 
Inc., 379 Se 2nd 1156; BOB Bullock, Comptroller v. Statistical Tabulating 
Corpn., 60-82 Tx-Taxrptr-TB 200-683 Texas Supreme Coun, The First 
National Bank of Fon Wonh, A National Banking Association v. BOB 
Bullock Comptroller of Public Accounts, State of Texas, 548 sw 2nd 548; 
First National Bank of Springfield v. Depanment of Revenue, 55-84 
11-Taxrptr-TB 201-165; Illinois Supreme Coun, Ray S. James, Director 
of Revenue, State of Missouri v. Tres Computer Systems inc., 642 SW 2nd 347; 
Comptroller of the Treasury v. Equitable Trust Co., 296 Md. 459, 464 A. 
2nd 248; Chittenden Trust Co. v. Commissioner of Taxes, 55-98 VT-Taxrptr-
TB 200-193; Vermont Supreme Coun, Toby Constructions Products Pty. 
l.Jd. v. Computa Bar (Sales) Pty. l.Jd., (1983); University Computing Co. 
v. Hon. Manha Olsen, Commissioner of Revenue for the State of Tennessee, 
677 SW 2d 445; Hasbro Industries, inc. v. John H. Norbery, Tax Administra-
tor, 487 A. 2d. 124; Compuserve, inc. v. lindley, 535 NE 2nd 360; Nonheast 
Datacom, inc. v. City of Wallingford, 55-90 CT-Taxrptr-TB 200-320; Con-
necticut Supreme Coun, South Central Bell Telephone Co. v. Sindney K. 
Banhelemy, 643 So. 2d 1240; Kenneth P. Hahn, As Assessor, Etc. v. State 
Board of Equalization, State v. Central Computer Services, Inc. (1977, Ala) 
349 Sc. 2d 1160, 61 ALR 3d 274 and Andersen Consulting, UP v. Gene· 
Gavin, Commissioner of Revenue ·Services, (2000) Connecticut Superior 
Court, referred to. 
CIVIL APPELLJITE JURISDICTION: Civil Appeal No. 2582 of 1998. 
From the Judgment and Order dated 12.12.96 of the Andhra Pradesh 
High Court in T.R.C. No. 99 of 1996. 
WITH 
Civil Appeal Nos. 2583, 2584, 2585 and 2586 of 1998. 
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G.S. Jetly, Pradeep Jetly, A.S. Bhasme and Manoj Kumar Mishra for 
the Appellants. 
K. Ramkwnar, B. Sridhar, Ms. Shantinarayana and Y. Subba Rao for 
the Respondent. 
H 
The Judgment of the Court was delivered by 
TATA CONSULTANCY v. STATE [RAJENDRA BABU, J.] 
361. 
RAJENDRA BABU, J. In these matters the Andhra Pradesh High 
A 
Court concluded that software is of two categories - (i) software which is . 
specialised and exclusively custom-made to cater to the needs of individual 
clients, and (ii) software ·which Is standardised and marketed for the use of 
certain classes of clients, like the Oracle, Lotus, Master Key, N-Export, Ex. 
Unig
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