Commissioner Of Sales Tax v. M/S Duke And Sons Pvt. Ltd.

Dr. B.P Saraf, J.:— By this reference under section 61(1) of the Bombay Sales Tax Act, 1959 read with section 8 of the Maharashtra Sales Tax on the Transfer of Right to use any goods for any purpose Act, 1985, the Maharashtra Sales Tax Tribunal has referred the following question of law to this Court for opinion at the instance of the revenue:

“Whether on facts and in the circumstances of the case, was the Tribunal justified in holding that the transaction between the respondent and Salstar Foods and Beverages Ltd., under agreement dated 6-9-1985 and evidenced by Debit Note No. 94.A dated 13-9-1988 for Rs. 1,500/- in respect of royalty charges collected by the respondent did not amount to “sale” as defined in section 2(10) of the Maharashtra Sales Tax on Transfer of Right to use any goods for any purpose Act, 1985 and, therefore, the respondent is not liable to get registered under the said Act?”

2. The material facts giving rise to this reference are as follows:

3. The assessee Duke and Sons Pvt. Ltd. is a company registered under the Bombay Sales Tax Act, 1959 as also under the Central Sales Tax Act, 1956. It is a holder of registered Trade Marks viz., Duke's, Mangola, Pineola, Tango. The assessee manufactures concentrates for manufacturing aerated waters, beverages etc. and sells the same to bottlers in the State of Maharashtra as also outside the State of Maharashtra for use in manufacture of aerated water, beverages etc. Such transactions between the assessee and the purchasers of concentrates take place in terms of the written agreement between them. As per these agreements, the assessee sells the concentrates to the customers for use in manufacturing aerated waters, beverages etc. at their bottling plants. Such purchasers of concentrates are also permitted to market their beverages by using the trademark of the assessee. The assessee charges royalty for the user of its trademarks by the customers. These agreements are known as “franchise agreements”. In the present case, the assessee entered into an agreement dated 6th September, 1985 with Salstar Foods and Beverages Ltd. of Kondavala, Pune. By this agreement, Salstar Foods and Beverages Ltd. were permitted to use the trademark of the assessee on the bottles of beverages manufactured by them in Maharashtra and to market the same under the trademark of the assessee. As per the agreement, the assessee charged royalty from Salstar Foods and Beverages Ltd. for the use of its trademarks at the rate specified therein. The assessee recovered a sum of Rs. 1,500/- as royalty by Debit Note No. 94.A dated 13th September, 1988. With a view to ascertaining its liability to pay tax under the Maharashtra Sales Tax on Transfer of Right to use any Goods for any purpose Act, 1985 (“1985 Act”) on the amount of royalty received by it for transfer of right to use its trademark to Salstar Foods and Beverages Ltd., the assessee applied to the Additional Commissioner of Sales Tax under section 52 of the Bombay Sales Tax Act, 1959 read with section 8 of the 1985 Act for determination of the question whether it was liable to pay tax on the amount of royalty received by it for the transfer of the right to use its trademark under the 1985 Act. The Additional Commissioner of Sales Tax (Enforcement Branch), by his order dated 3rd March, 1989, held that by the agreements in question there was a transfer of right to use the trademarks of the assessee to its customer and in that view of the matter, the transaction in question amounted to “sale” within the meaning of clause (10) of section 2 of the 1985 Act and hence the assessee was liable to pay tax under that Act on the amount of royalty received by it. Aggrieved by the above order of the Additional Commissioner of Sales Tax, the assessee appealed to the Maharashtra Sales Tax Tribunal (“Tribunal”). Before the Tribunal, it was contended on behalf of the assessee that the ownership and possession of the trademark not having been transferred or handed over to its customers, the transaction in question could not be regarded as a “sale” within the meaning of clause (10) of section 2 of the Act. It was contended before the Tribunal that unless the control over the property is passed to the customers, there cannot be any transfer of right to use the same, and hence transfer of right to use the trademark in the absence of the transfer of the trademark itself could not be regarded as sale within the meaning of clause (10) of section 2 of the 1985 Act. The Tribunal accepted the above contention of the assessee and held that permission to use the trademark without transfer of the trademark or any right therein could not be regarded as a sale within the meaning of clause (10) of section 2 of the Act. The Tribunal, therefore, set aside the order of the Additional Commissioner of Sales Tax and held that the transaction in question did not amount to transfer of right to use trademark by the assessee to its customers and no tax could be levied on the royalty received by the assessee for the said transfer. Aggrieved by the above order of the Tribunal, the revenue applied for reference of the question of law arising therefrom to this Court and hence this reference.

4. We have heard Mr. Rana, learned counsel for the revenue, who submits that the approach of the Tribunal in deciding the liability of the assessee under the 1985 Act which was enacted by the State of Maharashtra after the 46th Amendment to the Constitution of India and insertion of clause (29A) in Article 366 by which the power of the legislature to levy tax on sale or purchase of goods was extended to include power to levy tax on the transfer of right to use any goods is wholly erroneous.

5. Mr. Surte, learned counsel for the assessee, on the other hand, submits that in the absence of transfer of the possession of the property, there cannot be any transfer of right to use the property within the meaning of clause (10) of section 2 of the 1985 Act. According to Mr. Surte, the transfer of right to use the goods necessarily involves delivery of possession by the transferor to the transferee. In other words, the submission of Mr. Surte is that in the instant case while transferring right to use the trademark to the customer, the assessee has not delivered possession of the trademark to the transferee. That being so, according to the learned counsel, there is no transfer of right to use the trademark within the meaning of clause (10) of section 2 of the 1985 Act. The learned counsel pointed out that the assessee had transferred the right to use the trademark without transfer of any right therein to various parties simultaneously. Such transfer of right to use the trademark, according to him, cannot be subjected to tax under the provisions of the 1985 Act. Reliance was placed on the decision of Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, (1990) 77 STC 182 in support of the above contention.

6. We have considered the rival submissions in the light of the facts of the case. There is no dispute about the fact that trademarks are goods within the meaning of clause (5) of section 2 of the 1985 Act which defines “goods” to mean all kinds of movable property (not being newspapers, or actionable claims or money, or stocks, shares or securities). This position is also well-settled by the decision of the Supreme Court in Vikas Sales Corporation v. Commissioner of Commercial Taxes, (1996) 102 STC 106 where it was observed that even incorporeal rights like trademarks, copy rights, patents and rights in personam capable of transfer or transmission are included in the ambit of “goods”. In the instant case, the admitted position is that by the agreement in question, the assessee transferred the right to use its trademarks to Salstar Foods and Beverages Ltd. (“transferee”) for consideration. Pursuant thereto, the transferee marketed its products under the trademark of the assessee and for transfer of the right to use the trademark for the purpose of marketing its products under the terms of the agreement, the transferee was liable to pay to the assessee the amount in question by way of royalty. The question that arises for consideration is whether the right to use the trademark without transfer of any right or interest therein would amount to “sale” within the meaning of clause (10) of section 2 of the 1985 Act.

7. The Maharashtra Sales Tax on the transfer of the Right to use any Goods for any purpose Act, 1985 was enacted with a view to levying tax on transfer of right to use any goods for any purpose for cash, deferred payment or any other valuable consideration in the State of Maharashtra. Under section 3 of the Act, tax is leviable on the turnover of sales in respect of transfer of right to use any goods. “Turnover of Sales” has been defined in clause (15) of section 2 to mean aggregate of the amounts of sale price received or receivable during the year by a dealer in respect of the transfer of the right to use any goods. “Sale price” has been defined in clause (11) of section 2 to mean the amount of valuable consideration received or receivable for the transfer of the right to use any goods for any purpose. The transfer of right to use any goods for any purpose is regarded as “sale” under the Act as is evident from the definition of “sale” in clause (10) of section 2 of the Act which defines sale to mean transfer of any right to use any goods for any purpose for cash, deferred payment or any other valuable consideration. From a conjoint reading of the above provisions, it is thus clear that tax is leviable under the Act on the amount received by the assessee for the transfer of the right to use any goods for any purpose. In the instant case, the assessee received a sum of Rs. 1,500/- by way of royalty on the transfer of right to use the trademark of which the assessee is the owner. The right was transferred by an agreement with the transferee by which the transferee was allowed to use the trademarks of the assessee on payment of consideration by way of royalty at the rate specified therein. It was made clear in the agreement that what was transferred to the transferee was only the right to use the trademark in the manner set out therein and not the right or interest of the assessee in the trademark. The assessee's case is that mere user of the trademark without transfer of any right in the trademark would not amount to transfer of right to use the trademark within the meaning of clause (10) of section 2 of the Act. However, on perusal of the clear provisions of the 1985 Act, we find it difficult to accept the same. This contention, in our opinion, goes counter to the very scheme and object of the 1985 Act. The 1985 Act was enacted for the purpose of levying tax on the transfer of right to use the goods. It is not applicable to transfer of right or title in the goods which may attract the provisions of the Bombay Sales-tax Act. In case of trademark, what is taxable under the 1985 Act is the transfer of right to use the trademark. Admittedly, by agreement between the assessee and Salstar Foods and Beverages Ltd. there was a transfer of right to use the trademark to Salstar Foods and Beverages Ltd. The royalty of Rs. 1,500/- was payable in respect of transfer of the right to use the trademark. Such transfer clearly falls within the provisions of the 1985 Act.

8. “Trade Mark” has been defined in section 2(1)(v) of the Trade and Merchandise Marks Act, 1958 to mean a mark used in relation of goods for the purpose of indicating a connection in the course of trade between the goods and some person having the right, either as a proprietor or as registered user, to use the mark whether with or without any indication of the identity of that person. There is a distinction between transfer of right to use a trademark and assignment of a trademark. “Assignment” of trademark is taken to be a sale or transfer of the trademark by the owner or proprietor thereof to a third party inter vivos. By assignment, the original owner or proprietor of trademark is divested of his right, title or interest therein. He is not so divested by transfer of right to use the same. Licence to use a trademark is thus quite distinct and different from assignment. It is not accompanied by transfer of any right or title in the trademark. The transfer of right to use a trademark falls under the purview of the 1985 Act and not the assignment thereof. The manner of transfer of the right to use the goods to the transferee would depend upon the nature of the goods. For transfer of right to use a trademark, permission in writing as required by law may be enough. In case of tangible property, handing over of the property to the transferee may be essential for the use thereof. All that will depend upon the nature of the goods. Take for instance, transfer of right to use machinery. The right to use the machinery cannot be transferred by transferor to the transferee without transfer of control over it. The case before the Andhra Pradesh High Court in Rashtriya Ispat Nigam Ltd. (supra) was a case of transfer of right to use machinery. It was in that context, the above decision came to be rendered. But the position in case of trademark is different. For transferring the right to use the trademark, it is not necessary to handover the trademark to the transferee or give control or possession of trademark to him. It can be done merely by authorising the transferee to use the same in the manner required by the law as has been done in the present case. The right to use the trademark can be transferred simultaneously to any number of persons. The decision of the Andhra Pradesh High court in Rashtriya Ispat Nigam Ltd. (supra) thus has no application to the transfer of right to use a trademark.

9. In the instant case, there is no dispute about the fact that trademark is specifically included in the schedule of goods to the 1985 Act in Entry No. 7. The amount received by the assessee on the transfer of the right to use the same is, therefore, liable to be taxed under the said Act. The Tribunal was, therefore, not correct in holding to the contrary.

10. In view of the above, we answer the question referred to us in the negative i.e in favour of the revenue and against the assessee. This reference is disposed of accordingly with no order as to costs.

Reference answered in favour of the Revenue.