2023 (7) TMI 1013 - SC - VAT and Sales Tax

Supreme Court affirms 'first sale' status in Kerala Sales Tax case, emphasizing brand ownership.

NILKAMAL LIMITED (FORMERLY KNOWN AS NILKAMAL PLASTICS LIMITED) Versus STATE OF KERALA ETC.

The Supreme Court overturned the Kerala High Court's decision and upheld the findings of the Kerala Sales Tax Appellate Tribunal. It ruled that the sale ... Levy falling upon the trade mark or brand name owner in the case of first sale of any product by such brand name holder or owner - Sale of Plastic moulded furniture - First point sale or not - further sale denied to fall within the mischief of Section 5(2) of the Kerala General Sales Tax Act (KGST Act) - holding brand names by two different licensing arrangements - HELD THAT:- In the present case, it is evident that both Kaveri and the assessee are authorized to use the trade mark and brand “Nilkamal” through separate arrangements. It appears that despite this fact, the present assessee is not engaged in manufacture of the goods in Kerala but is only selling them in that State. On the other hand Kaveri appears to be a manufacturer / dealer whose entire produce is sold to the assessee. In view of the categorical ruling of this Court in “Kail” there can be doubt that the sale to the assessee by Kaveri cannot be ignored by any stretch of the imagination - not in the least because Kaveri was an exempted unit at the relevant time. The fact that an exemption prevailed and enured in favour of a unit does not in any way detract from the circumstance that the levy subsists. This fundamental aspect appears to have been completely ignored by the High Court when it ruled that such sale had to be ignored altogether. The High Court, therefore, acted clearly in error in reversing the findings of Tribunal - the impugned judgment and order is hereby set aside; the appeals are allowed. Issues Involved:1. Determination of the 'first sale' under Section 5(2) of the Kerala General Sales Tax Act (KGST Act).2. Applicability of tax exemption for the sale by Kaveri to the assessee.3. Interpretation and application of previous Supreme Court judgments on similar issues.Summary:1. Determination of the 'First Sale' under Section 5(2) of the KGST Act:The Supreme Court examined whether the sale by Kaveri Pet and Polyforms Pvt. Ltd. ('Kaveri') to the assessee constituted the 'first sale' under Section 5(2) of the KGST Act. The Kerala High Court had previously ruled that the sale by Kaveri to the assessee did not constitute the first sale, as both were holders of the brand 'Nilkamal.' The Supreme Court, however, referred to its previous rulings, particularly in 'Cryptm Confectioneries Private Limited vs. State of Kerala' and 'Kail Limited vs. State of Kerala,' which clarified that the first sale is by the brand name holder or trademark holder. The Court concluded that the High Court erred in ignoring the sale by Kaveri, which was the first sale, and thus, Section 5(2) was applicable.2. Applicability of Tax Exemption for the Sale by Kaveri to the Assessee:The High Court had noted that Kaveri's sales were exempt for the relevant period and concluded that this exemption influenced the determination of the first sale. The Supreme Court disagreed, stating that the exemption did not negate the fact that Kaveri's sale to the assessee was the first sale under the Act. The Court emphasized that the levy of tax subsists regardless of the exemption status of the unit at the relevant time.3. Interpretation and Application of Previous Supreme Court Judgments:The Supreme Court referred to its judgments in 'Cryptm Confectioneries' and 'Kail Limited,' which provided guidance on interpreting Section 5(2) of the KGST Act. These judgments established that the first sale is by the brand name holder or trademark holder, and inter se sales between brand name holders are not intended to be covered by Section 5(2). The Court reiterated that the sale between Kaveri and the assessee, both authorized to use the 'Nilkamal' brand, should be recognized as the first sale.Conclusion:The Supreme Court set aside the impugned judgment and order of the Kerala High Court, reinstating the findings of the Kerala Sales Tax Appellate Tribunal. The appeals were allowed, and no order as to cost was made. The Court clarified that the sale by Kaveri to the assessee constituted the first sale under Section 5(2) of the KGST Act, and the tax exemption status of Kaveri did not alter this determination.