Brand name licence can be a taxable transfer of the right to use goods, with VAT and service tax applying separately.

A non-exclusive franchise licence to use a brand name and associated intellectual property for consideration was treated as a transfer of the right to use goods, bringing the transaction within VAT as a deemed sale under the VAT Act and Article 366(29A)(d). The Court held that brand name and goodwill are valuable incorporeal property, and the arrangement was not merely a service contract. It further held that where a composite transaction contains separable sale and service components, each may be taxed on its own character; service tax on the service limb does not exclude VAT on the transfer limb. The writ petitions challenging VAT liability therefore failed.

---

---

Issues: (i) Whether grant of a non-exclusive licence to use the brand name under the franchise agreement amounted to a transfer of the right to use goods exigible to VAT. (ii) Whether, in a composite arrangement involving elements of service and transfer of the right to use goods, VAT and service tax could both apply on their respective taxable components.

Issue (i): Whether grant of a non-exclusive licence to use the brand name under the franchise agreement amounted to a transfer of the right to use goods exigible to VAT.

Analysis: The agreement conferred a limited but enforceable right to use the brand name and associated intellectual property for consideration. The Court treated the brand name and goodwill as incorporeal property having value and held that the statutory definition of sale under the VAT Act, read with Article 366(29A)(d) of the Constitution of India, includes transfer of the right to use goods. The transaction was not a mere service arrangement and the cited authorities on telecommunication services and machinery use did not exclude VAT on the consideration for such transfer.

Conclusion: The grant of a non-exclusive licence to use the brand name was taxable under the VAT Act and the issue was decided against the assessee.

Issue (ii): Whether, in a composite arrangement involving elements of service and transfer of the right to use goods, VAT and service tax could both apply on their respective taxable components.

Analysis: The Court held that where a transaction has separable components of sale and service, taxation can be levied on each component according to its true character. The dominant intention test was held to be unavailable for excluding tax on the sale component, and payment of service tax did not immunise the transfer component from VAT.

Conclusion: Both VAT and service tax could apply to their respective components, and this issue was also decided against the assessee.

Final Conclusion: The franchise arrangement was held to involve a taxable transfer of the right to use goods, and the writ petitions challenging VAT liability failed.

Ratio Decidendi: A contractual licence to use a brand name or similar valuable incorporeal property for consideration is a transfer of the right to use goods and is taxable as a deemed sale, while separable service elements in the same transaction may be taxed independently.

---