2010 (11) TMI 870 - HC - VAT and Sales Tax

Court rules trademark royalty taxable under GST Act, dismisses tax revision cases. Upholds Tribunal decision.

Nutrine Confectionery Co. Pvt. Ltd. Versus State of Andhra Pradesh

Nutrine Confectionery Co. Pvt. Ltd. Versus State of Andhra Pradesh - [2011] 40 VST 327 (AP) Issues Involved:1. Liability under Section 5E of the Andhra Pradesh General Sales Tax Act, 1956 (GST Act) for royalty received against the right to use a trademark and patent.Issue-Wise Detailed Analysis:Liability under Section 5E of the GST Act for Royalty Received:The core issue in this judgment is whether the liability fixed under Section 5E of the GST Act in respect of the royalty received by the appellant for the right to use the 'Nutrine' trademark and 'bunny' logo is sustainable in law.The Sales Tax Appellate Tribunal, Hyderabad, held that the consideration received by the petitioner from other companies for the transfer of the right to use its 'Nutrine' trademark and 'bunny' logo is the amount realized in respect of the transfer of the right to use the goods and thus attracts tax. This finding was challenged in the revision cases.Facts and Agreements:The petitioner, a company engaged in manufacturing and marketing confectionery, entered into agreements with various companies allowing them to use the 'Nutrine' trademark and 'bunny' logo. The agreed royalty was Rs. 500 per ton of production. The Commercial Tax Officer (CTO) assessed the taxable turnover for the years 1997-98 and 1998-99, which was subsequently revised by the Additional Commissioner of Commercial Taxes. The petitioner challenged these assessments before the Tribunal, which upheld the tax liability.Petitioner's Argument:The petitioner argued that the royalty paid by the assignee was for multiple services, including the use of the trademark and logo, and thus, there was no exclusive transfer of the right to use goods as contemplated under law. They relied on previous judgments, including 'Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer' and 'State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd.', to support their claim that there was no exclusive right to use the goods by the transferee.Respondent's Argument:The Special Counsel for Commercial Taxes contended that the petitioner failed to prove there was no transfer of the right to use the trademark and logo. They argued that exclusivity of use is not possible for incorporeal or intangible goods like trademarks, which can be used by both the transferor and transferee simultaneously.Court's Analysis:The court noted that the 'Nutrine' trademark and 'bunny' logo are considered goods under Section 2(h) of the GST Act. The agreement between the petitioner and the assignee included clauses that allowed the use of the trademark and logo, along with other business supports like formulas and recipes. The court emphasized that Section 5E of the GST Act taxes the amount realized from the transfer of the right to use any goods, regardless of whether the transfer includes other services.The court analyzed the agreement and concluded that the primary purpose was the transfer of the right to use the trademark and logo, with other services being incidental. The court found that the consideration for royalty was primarily for the use of the trademark and logo, making the transaction taxable under Section 5E.Precedents and Legal Interpretation:The court reviewed several precedents, including 'Rashtriya Ispat Nigam Ltd.' and 'Bharat Sanchar Nigam Ltd. v. Union of India', to determine the nature of the transaction. It concluded that the transfer of the right to use the trademark and logo was discernible and dominant, making it subject to tax under Section 5E.Conclusion:The court dismissed the tax revision cases, holding that the consideration received as royalty for allowing the use of the trademark and logo is taxable under Section 5E of the GST Act. The court found no merit in the petitioner's arguments and upheld the Tribunal's decision. There was no order as to costs.