Permitted use of trademark is not a deemed sale where the owner retains control, possession and supervision over brand use.

Composite brewing, bottling and brand-licence arrangements do not amount to a transfer of the right to use a trademark where the owner retains control, inspection rights, termination power and the ability to direct specifications and use. Applying the constitutional test for transfer of the right to use goods and the deemed-sale framework under the Karnataka Value Added Tax Act, the Tribunal treated the contract bottling units and licensees as permitted users under continuing supervision, not as transferees of exclusive possession or control. Royalty received for packaged mineral water under the brand was likewise treated as consideration for permitted use and associated services, not VATable transfer. The State's cross appeals to restore reassessment orders therefore failed.

---

---

Issues: (i) Whether the brewing and distribution arrangements with contract bottling units amounted to a transfer of right to use the trademark and thereby a deemed sale under the Karnataka Value Added Tax Act, 2003. (ii) Whether the royalty received from licensees for manufacture and sale of packaged mineral water under the 'Kingfisher' brand amounted to a transfer of right to use the trademark and was liable to VAT. (iii) Whether the State's cross appeals to restore the reassessment orders could be sustained.

Issue (i): Whether the brewing and distribution arrangements with contract bottling units amounted to a transfer of right to use the trademark and thereby a deemed sale under the Karnataka Value Added Tax Act, 2003.

Analysis: The agreements were read as a whole and found to be composite arrangements for brewing, technical know-how, supervision, quality control, marketing support and regulated permitted use of trademarks. The appellant retained ownership, effective control, inspection rights, termination control, and the power to direct specifications and use. Applying the attributes for transfer of the right to use goods under Article 366(29-A)(d) of the Constitution of India and the statutory definition of deemed sale, the essential elements of exclusive possession and transfer of a bundle of rights were found absent. The use by the contract bottling units was only as registered users and permitted users under the Trade Marks Act, 1999.

Conclusion: The arrangements did not amount to a transfer of right to use the trademark and were not liable to tax as deemed sale. This issue was decided in favour of the assessee.

Issue (ii): Whether the royalty received from licensees for manufacture and sale of packaged mineral water under the 'Kingfisher' brand amounted to a transfer of right to use the trademark and was liable to VAT.

Analysis: The technical know-how agreement and licence agreement were treated as composite documents showing only permission to use the brand in the course of manufacture under the appellant's specifications and control. The royalty was also shown to have been offered to service tax, supporting the conclusion that the receipt was attributable to intellectual property services rather than a taxable transfer of the trademark. On the same principles governing control, possession and permitted use, the royalty could not be treated as consideration for a deemed sale under the Karnataka Value Added Tax Act, 2003.

Conclusion: The royalty on packaged mineral water did not constitute a transfer of right to use the trademark and was not exigible to VAT. This issue was decided in favour of the assessee.

Issue (iii): Whether the State's cross appeals to restore the reassessment orders could be sustained.

Analysis: Since the underlying transactions were held not to amount to deemed sales and the royalty receipts were held outside the VAT net, the grounds raised in the cross appeals failed. The reassessment orders could not be restored in the face of the contractual terms, the statutory framework on permitted use and registered user, and the settled principles on transfer of right to use goods.

Conclusion: The cross appeals were not sustainable. This issue was decided against the Revenue.

Final Conclusion: The Tribunal held that the appellant's arrangements involved only permitted use of trademarks and technical/marketing services, not taxable transfers of the right to use goods, and therefore the assessee's appeals succeeded while the State's cross appeals failed.

Ratio Decidendi: A composite franchise or licence arrangement does not amount to a deemed sale unless the transferee obtains exclusive legal right to use the trademark with effective transfer of possession and control; mere permitted use under continuing supervision of the owner is not a transfer of the right to use goods.

---