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For the sake of completeness, it must be noted that a Notification dated 1st March, 1989, issued in exercise of the powers conferred by Section 5A(1) of the Central Excises and Salt Act, 1944, gives to "computer software falling under Heading 85.24 of the Schedule to the Central Excise Tariff Act, 1985," exemption from the whole as the excise duty leviable thereon.

The Tribunal in the judgments that are impugned proceeded upon the basis that the appellants sold computer systems and that a computer systems was incomplete without systems software inasmuch as mere hardware without systems software did not make the system workable. It relied upon its earlier judgment in the case of collector of Central Excise, Bangalore, vs. Sunray computers Private Limited, (1988) 33 ELT 787, in this behalf. That judgment observed that "without software the hardware was incomplete, a mere dumb box and of no use at all to the customer. If there was a single contract for the supply of a computer including software the total value of the computer including that of the software would have to be assessed to duty irrespective of the fact whether the software part is supplied along with the hardware or in a separate lot and irrespective of the fact whether a single invoice is made for both hardware and software or a separate invoice is made for the software." The Tribunal held that the 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.

"Whether a typewriter ribbon is a part of a typewriter is to be considered in the light of what is meant by a typewriter in the commercial sense. Typewriters are being sold in the market without the typewriter ribbons and therefore typewriter ribbon is not an essential part of a typewriter so as to attract tax as per entry 18 of the Second Schedule to the Mysore Sales Tax Act, 1957." On the same reasoning, it was submitted, the software that was sold by the appellants along with their computers was not an essential part of the computers. What a computer was had to be judged in the light of its commercial sense and, in that sense, the software was not understood to be a part of the computer. Reference was made to Section 8OHHL of the Income tax Act which provides for deduction of profits from export of "computer software" Reference was also made to the provisions of the Copyright Act, 1967, where a computer is defined as including any electronic or similar device having information processing capabilities and a computer programme is defined to mean a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result. Interestingly, the Copyright Act defines `literary work' to include computer programmes, tables and compilations including computer data bases. Reference was also made to the aforementioned contracts which indicate the distinction that buyers made between the computer and the software.
In the appeals of Wipro Information Technology Limited and PSI Data Systems Limited, the charges for installation of the computer and the training of the purchaser's personnel to operate and maintain it were also included in the assessable value of the computer, and the argument that was advanced in respect of the value of the software was also advanced in respect of these charges.
Learned counsel for the respondent, fairly, did not dispute that the value of the software that the appellants might sell with their computers, if so ordered by the purchasers thereof, could not be included in the assessable value of the computers. He was, however, at pains to urge that this did not apply to the firm software that was etched into the computer; this is not even the appellants' case.
In the first place, the Tribunal confused a computer system with a computer; what was being charged to excise duty was the computer.
Secondly, that a computer and its software are distinct and 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. rhoms, but that is not to say that these are part of the computer, their value must form par of the assessable value of the computer for the purposes of excise duty. To give an example, a cassette recorder will not function unless a cassette is inserted in it; but the two are well known and recognised to be different and distinct articles. The value of the cassette, if sold along with the cassette recorder, cannot be included in the assessable value of the cassette recorder. Just so, 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.