1996 (2) TMI 414 - SC - VAT and Sales Tax

Supreme Court Overturns Tribunal Decision on Brand Name Exemption

Commercial Tax Officer and Others Versus Emkay Investments Pvt. Ltd.

The Supreme Court allowed the appeal, overturning the Tribunal's decision and ruling that the respondent could only claim exemption for products not using ... Whether it would be reasonable to mean that if a manufacturer uses the brand name or trade mark of an existing industrial unit even in respect of a small portion of its production, it would be totally deprived of the benefit of the said exemption from sales tax? Held that:- Appeal allowed. Having regard to the object and purpose underlying the said Rule 3(66a), it would be reasonable to say that the respondent shall not be entitled to the benefit of the said exemption from sales tax in respect of the goods, for which the trade mark or brand name of an existing industrial unit is used. But in so far as other products for which the brand name is not used are concerned, it will be entitled to claim the benefit of the aforesaid sub-rule. The burden of clearly establishing that in respect of certain goods manufactured by it, the trade mark or brand name of an existing industrial unit is not being used, shall be squarely upon the manufacturer. Issues:Interpretation of rule 3(66a) of the Bengal Sales Tax Rules, 1941 regarding exemption for newly set-up small-scale industries using brand names of existing industrial units.Analysis:The case involved an appeal against the judgment of the West Bengal Taxation Tribunal concerning a new unit engaged in plywood manufacturing seeking exemption from sales tax under rule 3(66a) of the Bengal Sales Tax Rules, 1941. The respondent, a new industry, was denied the exemption certificate by sales tax authorities due to its use of the brand name 'M/s. Marinoply,' which belonged to another company. The Tribunal, by a majority decision of 2:1, ruled in favor of the respondent, allowing exemption for all its products, even those using the disputed brand name. However, the Supreme Court examined the relevant rule 3(66a), particularly clause (vi) of the Explanation, which states that the benefit of exemption is available only to newly set-up small-scale industries that do not use the trademark or brand name of existing industrial units.The Court acknowledged the clear language of the Explanation but considered whether a literal interpretation would be reasonable, potentially depriving a manufacturer of the exemption for using an existing brand name on only a small portion of its products. The Court found that to align with the underlying purpose of the rule, the respondent should not be entitled to exemption for goods using the brand name of an existing unit. However, for products not utilizing the disputed brand name, the respondent could claim the exemption. The Court emphasized that the burden lies on the manufacturer to clearly establish which goods do not use the brand name in question.Consequently, the Supreme Court allowed the appeal, setting aside the Tribunal's decision and ruling that the respondent could only claim exemption for products not using the brand name of the existing industrial unit. The judgment highlighted the importance of adhering to the rule's requirements and the need for manufacturers to demonstrate compliance with the exemption criteria to avail the benefits provided.