2015 (12) TMI 240 - HC - VAT and Sales Tax

Court Upholds 14.5% Turnover Assessment for Branded Food Sales under TNVAT Act

The court upheld the respondent's decision to assess the petitioner's turnover at 14.5% for selling branded food, considering the registration under the ... Branded goods - trade mark registration as indicia of branding - distinction between house mark and product mark - Levy of taxes on food and drinks (branded v. unbranded) - deemed sale by supply of goods as part of service - revision under best-judgment assessmentBranded goods - Levy of taxes on food and drinks (branded v. unbranded) - definition of branded - Food prepared and served by the petitioner falls within the definition of 'branded' and is taxable at the branded-food rate under the TNVAT Act. - HELD THAT: - The Court applied the statutory definition of 'branded' in Section 2(9) of the TNVAT Act to the admitted fact that the petitioner holds trade mark registration. The court reasoned that when a restaurant obtains registration of a trade mark for its name under the Trade Marks Act, the food items prepared and served by that restaurant are recognisably associated with that mark; a customer entering the restaurant is assured that the food is prepared by the proprietor identified by that mark. Consequently, such food falls within the legislative meaning of 'branded' and attracts the tax rate specified in the schedule for branded food, rather than the rate for unbranded ready-to-eat foods. The court rejected the petitioner's contention that in-restaurant consumption or absence of packaging or labelling precludes the goods from being branded. [Paras 9, 11]The assessment treating the petitioner's food as branded and taxable at the branded-food rate is upheld.Trade mark registration as indicia of branding - distinction between house mark and product mark - trade mark registration for services (Class 43) and its effect on goods - Registration of the mark in Class 43 (services for providing food and drink) does not preclude treating the food prepared and served as 'branded' goods for VAT purposes. - HELD THAT: - The Court examined the Trade Marks Rules classification and noted that Class 43 covers services for providing food and drink but that registration of a trade mark in respect of restaurant services simultaneously indicates a distinctive mark associated with goods prepared and served by the restaurant. The court held that trade mark registration for services is capable of supporting a finding that the goods (food and drink) are sold under a trade mark within the meaning of the TNVAT Act. The petitioner's argument that the mark is only a 'house mark' and not a product mark was rejected as the statutory definition focuses on goods sold under a name or trade mark registered or pending registration, irrespective of packaging or mode of service. [Paras 8, 9]Trade mark registration for the restaurant (including Class 43 services) supports classification of the food as branded for taxation.Revision under best-judgment assessment - principles of natural justice (personal hearing / non-speaking order) - The impugned assessment order was not in violation of natural justice and was passed after issuing a pre-revision notice and considering the petitioner's objections. - HELD THAT: - The respondent produced a pre-revision notice and a record of objections filed by the petitioner. The Court noted that the assessing authority is empowered under the revision provision to determine tax payable to the best of its judgment and that the impugned order was preceded by the statutory pre-revision notice dated 3.12.2014 and consideration of objections dated 18.12.2014. On this basis the court found no substance in the petitioner's allegation that the order was ex parte or non-speaking and therefore no infirmity on natural justice grounds warranted interference. [Paras 8, 12]No breach of natural justice found; the assessment stands.Final Conclusion: The writ petition is dismissed; the impugned assessment treating the petitioner's food as branded and taxable at the branded-food rate is upheld and there is no failure of natural justice in the assessment process. Issues:1. Assessment of turnover at 14.5% for selling branded food.2. Interpretation of the term 'Zaitoon' as a house mark or brand name.3. Validity of the impugned order passed by the respondent.4. Applicability of tax rates under Section 7(1)(a) of TNVAT Act, 2006.5. Alternative remedy for the petitioner.Analysis:1. The petitioner, a restaurant, reported a total turnover and paid VAT at 2%. The respondent alleged that the petitioner sold branded food, taxable at 14.5%. The petitioner argued that 'Zaitoon' is a house mark, not a brand name, and the registration was for services, not products. The respondent contended that the food sold falls under branded items. The court found the registration under the Trade Marks Act applicable to both the restaurant and its products, leading to a levy of 14.5% tax.2. The petitioner claimed 'Zaitoon' was a house mark, not a brand name. However, the court held that since the restaurant exclusively served food prepared by them under the registered trademark, it constituted branded food. The court emphasized that the registration for services provided by the restaurant extended to the food items sold, making them branded under the TNVAT Act, 2006.3. The court reviewed the impugned order and found no irregularities. The respondent followed due process by issuing notices and considering objections. The court upheld the respondent's decision to assess the turnover at 14.5% for selling branded food, dismissing the petitioner's contentions regarding the nature of the registration and the classification of food items.4. Section 7(1)(a) of the TNVAT Act, 2006 mandates a tax rate of 14.5% on the sale of unbranded food and drinks by recognized establishments. The court clarified that the petitioner's exclusive preparation and service of food under the registered trademark qualified as branded items, attracting the prescribed tax rate. Despite the petitioner's arguments on the nature of the services provided, the court upheld the tax assessment.5. The petitioner argued that the impugned order violated principles of natural justice, justifying the writ petition. The court, however, found the order lawful and denied any illegality. The petitioner's contentions regarding the applicability of sales tax laws and constitutional amendments were dismissed, upholding the respondent's assessment and denying relief to the petitioner.