Tata Consultancy Services v State of AP

Facts

• TCS developed and supplied computer software to various clients in Andhra Pradesh
• The AP sales tax authorities treated software as "goods" and levied sales tax
• TCS contended that software was intellectual property / services, not tangible goods
• The Tribunal and High Court reached different conclusions
• The Supreme Court heard the matter on whether software is "goods" under sales tax law

Issues

1. Whether computer software (both canned and customized) constitutes "goods" within the meaning of sales tax legislation
2. Whether the intangible nature of code prevents it from being classified as goods

Held

• Software is "goods" within the meaning of the Sales Tax Act and Article 366(12) of the Constitution
• Software has the attributes of goods: it is capable of abstraction, consumption, use, transmission, transfer, delivery, storage, and possession
• The distinction between canned (off-the-shelf) and customized software is irrelevant for the goods/non-goods classification
• Both forms are goods liable to sales tax when sold
• The medium of delivery (physical or electronic) does not change the character

Ratio Decidendi

The Constitution's definition of "goods" (Article 366(12)) includes all materials, commodities, and articles. Software satisfies this: it has intrinsic value, is the subject of trade, can be transmitted and possessed. Intellectual property embedded in a commercially transferable medium acquires the attributes of goods. The incorporeal nature of the underlying code does not disqualify it.