Transfer of right to use intangible goods in a franchise arrangement was held liable to sales tax.

A franchise arrangement permitting exclusive use of a supermarket's trade mark, goodwill, systems, names and related rights for a fixed term was treated as a transfer of the right to use goods for sales tax purposes. The court noted that the rights were proprietary and exclusively enforceable during the arrangement, the fee was linked to turnover, and the contract was distinguishable from a mere non-exclusive licence or a claim to payment. It also recognised that intangible and incorporeal property, including trade mark rights, can amount to goods when the legal right to use them is transferred. The franchise fee was therefore liable to sales tax, and the challenge failed.

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Issues: Whether the franchise arrangement under which the assessee permitted use of its trade mark, goodwill, systems and related rights for a specified outlet amounted to a transfer of right to use goods exigible to sales tax under the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The agreement granted the franchisee exclusive rights to operate the supermarket at the specified location and to use the assessee's systems, names, marks, insignia, symbols and goodwill for a fixed term. The payment structure was linked to turnover, and the termination clause showed that the licensed rights were enforceable proprietary rights capable of exclusive use for the duration of the arrangement. The transaction was not a mere claim to payment or an actionable claim within the meaning of the law. The principles governing actionable claims, deemed sales and transfer of the right to use goods showed that intangible and incorporeal property, including trade mark rights, can constitute goods for sales tax purposes when the legal right to use them is transferred. The arrangement satisfied the attributes of transfer of right to use and was distinguishable from cases where the franchisor retained only a non-exclusive licence or effective control.

Conclusion: The franchise fee represented consideration for transfer of the right to use intangible goods and was liable to sales tax. The challenge failed.

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