Everything which is recorded on CD-ROM can not be held as software. - SC

Honorable Supreme Court in a matter related to Customs duty but equally relevant to central excise and service tax (obviously relevant to VAT / sales tax too) has decided that everything which is recorded on CD-ROM can not be held as software.

Apex Court has held that:

"18. The term software is defined by the Advanced Law Lexicon (3rd Ed.) as "distinct from hardware, the computer program enabling a computer to function". The same expression software is also defined in Britannica Concise Encyclopedia as "the entire set of programs, procedures and routines associated with the operation of a computer system, including the operating system". We have also considered the meaning of the word "software" given by the Merriam-Webster Dictionary as "the entire set of programs, procedures and related documentation associated with a system and especially a computer system; specifically computer programs.

19. The aforesaid definitions, therefore, make it crystal clear that software is the set of instructions that allows physical hardware to function and perform computations in a particular manner, be it a word processor, web browser or the computer's operating system. These expressions are in contrast with the concept of hardware which are the physical components of a computer system, and data, which is information that performs no computation and gives no enabling instructions to computer hardware but is ready for processing by the computer software.

20. In the light of the aforesaid background, the question that arises for our consideration is whether the data in a compact disk falls within the meaning of the term software. It is needless to reiterate that data at issue in this case are images of drawings and designs intended to be used for engineering projects, therefore, the core issue to decide is whether such drawings, designs intended to be used for engineering projects be termed "software" so as to entail the benefit of the aforesaid Notification 17/2001 Cus dated 1.3.2001.

21. There can be no doubt that such engineering drawings and designs do not provide instructions for the computer hardware to perform. At best, the said drawings and designs can be said to be are by-products and outputs of the computer software, which generate the designs and drawings. Therefore, such engineering drawings or designs data in a CD cannot be placed in the category of the term "software". It is therefore held that the engineering drawings and designs contained in a CD ROM will not be covered Heading 85.24 of the Tariff.

22. Such a case also does not fall under the sub-heading 8524.99, i.e., "Other", as the same must be relatable to all those which are said to be under the Main Heading 85.24. Sub-Heading 8524.99, includes, inter alia, recorded media (excluding discs for laser reading systems, magnetic tapes and cards incorporating a magnetic stripe) for reproducing representations of sound or images in addition to instructions and data, recorded in a machine readable binary form and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine. As stated earlier the Harmonious System of Nomenclature (HSN), which is a safe guide for classification, also supports such a view."

For full text of judgment, visit: L.M.L. Ltd. Versus Commissioner of Customs [2010 -TMI - 77632 - Supreme Court of India]

Also see tariff classifications under Customs