2004 (7) TMI 615 - HC - VAT and Sales Tax

Ponds Trademark Tax Liability Decision Upheld

The Karnataka High Court upheld the decision of the Tribunal, ruling that the petitioner-company was considered the first seller liable for tax under the ... - Issues Involved:1. Whether the appellant is the registered dealer of the trade mark under the Trade and Merchandise Marks Act, 1958.2. Whether the appellant was only an unregistered licensee with M/s. Chesebrough Ponds Inc. under an agreement for user and not the registered holder of the trade mark.3. Whether the Tribunal was right in invoking the third proviso to section 5(3)(a) of the K.S.T. Act.4. Whether the Tribunal was right in its conclusion regarding the manufacturing of goods under a trade mark registered under the Trade and Merchandise Marks Act.5. Whether the Tribunal ignored the relevant provisions of section 5(3) which requires registration of the trade mark in the name of the appellant.Detailed Analysis:Issue 1: Registered Dealer of the Trade MarkThe Tribunal held that the petitioner-company, M/s. Ponds (India) Ltd., is the licensed user of the brand name 'Ponds,' which is owned by M/s. Chesebrough Ponds Inc., U.S.A., and registered under the Trade and Merchandise Marks Act in India. The authorities concluded that the petitioner is the first dealer in the State liable to tax under the proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957 ('the K.S.T. Act').Issue 2: Unregistered LicenseeThe petitioner contended that it was only an unregistered licensee under an agreement for user with M/s. Chesebrough Ponds Inc. and not the registered holder of the trade mark. The Tribunal and authorities under the Act considered the petitioner as the first seller of the goods in the State due to the legal fiction introduced under the third proviso to section 5(3)(a) of the K.S.T. Act, which applies to the licensed user of a trade mark.Issue 3: Invocation of Third Proviso to Section 5(3)(a)The Tribunal invoked the third proviso to section 5(3)(a) of the K.S.T. Act, which states that if goods are manufactured by a dealer with the brand name or trade mark of another dealer and sold to the brand name holder, the sale by the brand name holder is deemed to be the first sale liable to tax. The Tribunal held that the petitioner, being the licensed user of the trade mark 'Ponds,' falls within the ambit of this proviso.Issue 4: Manufacturing Under Registered Trade MarkThe Tribunal noted that M/s. J.B. Advani and Co. manufactured goods under the brand name 'Ponds' and supplied them exclusively to the petitioner. The Tribunal held that the petitioner, as the licensed user of the trade mark, is liable for tax as the first seller in the State. The legal fiction created by the proviso to section 5(3)(a) deems the subsequent sale by the petitioner as the first sale.Issue 5: Registration Requirement Under Section 5(3)The Tribunal concluded that the expression 'otherwise to use the said name or trade mark' in the third proviso to section 5(3)(a) does not require the user to be a registered user under the Trade and Merchandise Marks Act. The proviso applies to any dealer permitted to use the trade mark, whether registered or not.Conclusion:The Karnataka High Court dismissed the petitions, holding that the Tribunal and authorities under the K.S.T. Act were justified in treating the petitioner-company as the first seller liable to tax under the third proviso to section 5(3)(a) of the Act. The Court concluded that the legal fiction created by the proviso applies to the petitioner, who is the licensed user of the trade mark 'Ponds,' making the subsequent sale by the petitioner the first sale in the State liable to tax.