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FACTS:
The Respondent is a company manufacturing computers, peripherals, servers, note books and accessories falling under different headings of Chapter 84 of the Schedule appended to the Central Excise Tariff Act, 1985. Upon a licence obtained by WIPRO, the Respondent, on orders received from the customers load operational softwares. While calculating the amount of central excise payable thereupon, it would deduct the value of the operational softwares from the total value of the computer supplied to the customers. The revenue objected to the said procedure on the premise that excise duty is payable on the entire value of the computer including the value of operational softwares.

Drawing our attention to the findings of fact arrived at by the Commissioner of Central Excise, the learned Counsel would submit that not only the operational softwares like Windows 98 OS or W2K are implanted in the computers by the Respondent but as would appear from the price list furnished by it the configurations of different models of computers including operational software are also quoted therein. Furthermore, the Respondent was also being under an obligation to preload a software on the computer before clearing the same from the factory, the central excise duty would be payable on the entire value thereof.

ANALYSIS :

While calculating the value of the computer the value of the hard disc, value of the firmware, the cost of the motherboard as also the costs for loading operating softwares is included. What is excluded from the total value of the computer is the value of the operating softwares like Windows 2000, Windows XP which are secondary softwares. Indisputably, when an operating software is loaded in the computer, its utility increases. But does it mean that it is so essential for running the computer that exclusion thereof would make a computer dead box? The answer to the said question as would appear from the discussions made hereinafter must be rendered in the negative. It is not disputed before us that even without operational softwares a computer can be put to use although by loading the same its utility is enhanced. Computers loaded with different operational softwares cater to the specific needs of the buyer wherefor he is required to place definite orders on the manufacturer. It is also not in dispute that an operating software loaded on the hard disc is erasable. It is also accepted that the operating software despite being loaded on to the hard disc is usually supplied separately to the customers. It is also beyond any controversy that operating software can be updated keeping in view the development in the technology and availability thereof in the market without effecting the data contained in the hard disc. Concededly, even in the case of hard disc crash the software contained in the CDs is capable of being reloaded on to the hard disc and its utility by the users remain the same. An operational software, therefore, does not form an essential part of the hardware.
Drawing a distinction between a computer system and a computer, it was held:
"12. In the first place, the Tribunal confused a computer system with a computer; what was being charged to excise duty was the computer."
It was furthermore opined:
"13. 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 CD ROMs, 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 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."