2004 (4) TMI 539 - HC - VAT and Sales Tax

Trademark Use Considered Taxable Sale of Incorporeal Goods; Writ Petition Dismissed Under Tamil Nadu Sales Tax Act.

The court affirmed the Tamil Nadu Taxation Special Tribunal's decision, supporting the Joint Commissioner-III's determination that the transaction ... Transfer of incorporeal goods - Taxability of the consideration received for the transfer of the right to use the trademark - Interpretation of 'goods' and 'movable property' under the Tamil Nadu General Sales Tax Act - Whether the transaction amounts to a sale or a mere right to enjoy the trademark - HELD THAT:- While the word 'property' has not been defined in the Tamil Nadu General Clauses Act, 1891, and in the General Clauses Act, 1897, the terms 'movable property' and 'immovable property' are defined. 'Movable property' is defined as to mean property of every description except immovable property. The term 'immovable property' is defined as to include land, benefits to arise out of land and things attached to earth or permanently fastened to anything attached to earth. The petitioner/ assessee permitted M/s. Muthu Agencies to use their trademark in the course of trade at the rates specified therein for various items during a particular period. Of course, it retained the liberty to make use of the trademark in the event of the licensor starting to manufacture the products. Equally, it retained the liberty to grant licence to any other individual person or company to use the trademarks. Trademark is the property right and it exclusively belongs to the party who has registered it. Such a right is an intangible or incorporeal goods, which can be merchandised by the registered owners. As pointed out by the Supreme Court, the word 'goods' is defined in very wide terms so as to bring in both tangible and intangible objects. General Clauses Act would explain movable property as property of every description except immovable property. Trademark right is intangible goods, which can be subject-matter of transfer. As already pointed out, M/s. Muthu Agencies was granted permission to use the trademark without any restriction whatsoever for a particular period. Consequently, it can only be taken as transfer of a right to use and not a mere right to enjoy. Simply because the assessee retained the right for himself to use the trademark and reserved the right to grant permission to others to use the trademark, it would not take away the character of the transaction as one of transfer of a right to use. Conclusion: The court held that the order of the Tamil Nadu Taxation Special Tribunal, confirming the order of the Joint Commissioner-III (SMR), Chepauk, was in order. The writ petition was dismissed, and the connected W.P. M.Ps. were closed. Issues Involved:1. Whether the transaction amounts to a sale or a mere right to enjoy the trademark.2. Taxability of the consideration received for the transfer of the right to use the trademark.3. Interpretation of 'goods' and 'movable property' under the Tamil Nadu General Sales Tax Act.Summary:Issue 1: Whether the transaction amounts to a sale or a mere right to enjoy the trademark.The petitioner/assessee allowed M/s. Muthu Agencies to use their trademark and received Rs. 7,26,835 as royalty. The assessing authority revised the assessment, treating the amount as taxable, considering it a transfer of the right to use the trademark. The Appellate Assistant Commissioner initially accepted the assessee's claim that it was only royalty, but the Joint Commissioner, in suo motu revision, held that the transfer of trademark right is a sale of incorporeal goods for consideration and thus taxable. The Tamil Nadu Taxation Special Tribunal upheld this view.Issue 2: Taxability of the consideration received for the transfer of the right to use the trademark.The court examined various rulings, including:- Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer: The Andhra Pradesh High Court ruled that the transaction did not involve the transfer of the right to use machinery, as the machinery was under the effective control of the assessee.- Vikas Sales Corporation v. Commissioner of Commercial Taxes: The Supreme Court held that the transfer of an import license constitutes a sale of goods, including incorporeal rights like trademarks.- Commissioner of Sales Tax v. Duke & Sons Pvt. Ltd.: The Bombay High Court ruled that the transfer of the right to use a trademark does not require handing over control or possession of the trademark.- Aggarwal Brothers v. State of Haryana: The Supreme Court held that the transfer of the right to use goods for consideration is a deemed sale.- 20th Century Finance Corpn. Ltd. v. State of Maharashtra: The Supreme Court ruled that the taxable event is the transfer of the right to use the goods, regardless of delivery.- State of Uttar Pradesh v. Union of India: The Supreme Court held that the supply of telephonic connection satisfies the requirements of a 'transfer of the right to use the goods.'Issue 3: Interpretation of 'goods' and 'movable property' under the Tamil Nadu General Sales Tax Act.Section 2(j) of the Tamil Nadu General Sales Tax Act defines 'goods' to include all kinds of movable property, including intangible objects like trademarks. The court noted that the trademark is an intangible property right that can be merchandised by the registered owners. The court concluded that the transaction in question involved the transfer of the right to use the trademark, making it taxable.Conclusion:The court held that the order of the Tamil Nadu Taxation Special Tribunal, confirming the order of the Joint Commissioner-III (SMR), Chepauk, was in order. The writ petition was dismissed, and the connected W.P. M.Ps. were closed.