TaxTMI 
TaxTMI 
2016 (12) TMI 821
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....both these writ petitions are as under: a) Whether grant of Non-Exclusive License to Franchise for use of brand name of petitioner under Franchisee Agreement amounts to transaction for transfer of rights to use goods for the purpose of levying VAT in terms of settled law laid down by Supreme Court in Bharat Sanchar Nigam Ltd. and another Vs. Union of India, AIR 2006 SC 1383 and State of A.P. Vs. Rashtriya Ispat Nigam Ltd., 126 STC 114 SC. b) Whether grant of non-exclusive licence to Franchise for use of brand name of petitioner under Franchisee Agreement comes under the provisions of Service Tax or is amenable to VAT/sales tax, and if both than which part is under Service Tax Act and which part is under VAT Act, 2008. c) Whether respondent no. 2 is justified in assessing VAT on such use of trade mark of petitioner without adjudicating legal issues raised by petitioner vide its various reply filed with respondent no. 2 alongwith judgment as the exercise of process of levying VAT on petitioner will be futile if this Court decided this question of law in favour of petitioner. 4. Before answering aforesaid questions, brief facts, relevant and necessary for....
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....ms and conditions mentioned in this MOU. The present MOU shall continue for such unless the same is terminated by either party. 4. RESPONSIBILITIES AND OBLIGATIONS OF THE FRANCHISEE In addition to the terms and conditions stated under this MOU the FRANCHISEE shall be responsible and liable to the FRANCHISOR under the below mentioned responsibilities and obligations, which have been noted hereunder only for the sake of convenience and are not exhaustive: 4.1 FRANCHISEE agrees and undertakes that the FRANCHISEE shall develop the School under this MOU in consultation with FRANCHISOR. 4.2 FRANCHISEE shall make the School operational within 24 months from the date of this MOU, failing which the MOU will be terminated by the FRANCHISOR and not be binding on the parties. Unless due to some reasons beyond the control of the FRANCHISEE, which the FRANCHISEE had at the time of occurrence of the same intimated to the FRANCHISOR in writing, then the FRANCHISOR may in consultation with the FRANCHISEE extend the period by such time as the FRANCHISOR may deem fit and proper provided that such extended period shall not exceed 12 months. Clarified that the decisi....
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....s and building bye-laws prevailing in the Area at the relevant time and shall adhere to all norms required for running of the School. The FRANCHISEE shall met the minimum standards laid down for erection, development, and maintenance of the School property as advised and approved by the FRANCHISOR. 4.8 The FRANCHISEE shall apply for and obtain all necessary permissions, sanctions, permits, no objections, licenses etc. from the Centre/State/Semi Government or any other competent authorities, Municipal or otherwise as the case may be in connection with the setting up and running of the School. The FRANCHISEE shall be solely responsible for taking all actions as may be required and necessary to obtain and keep current any governmental licenses, permits, registrations and approvals in the area that are necessary for it to carry out or perform its obligations, services and activities hereunder. 4.9 It is agreed between the Parties that the FRANCHISOR shall at no time and in no way be responsible for the abovementioned permissions, sanctions, permits, no objections, licenses etc. and for any consequences arising out of delay or failure on the FRANCHISEE's part to ob....
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....el. It is agreed that in order to have the intended chain effect and common good, FRANCHISEE shall honor all programme which FRANCHISOR in its discretion decides and makes applicable to all schools with a view to gain the chain strength. All the programmes shall be controlled centrally by FRANCHISOR. 4.14 The FRANCHISEE has represented that it is properly registered, licensed and qualified, and has all requisite power and authority in accordance with the laws, rules and regulations as applicable, to carry out its obligations and to perform services specified under this MOU. FRANCHISEE warrants that the FRANCHISEE will perform services and activities in accordance with all laws, regulations, rules, decrees or policies in force. 4.15 Neither FRANCHISEE nor its Affiliates nor any person or firm connected with it, warrant that they have participated or will participate in any action that is in violation of any laws, regulations, rules, decrees or policies in force in the Area. 4.16 FRANCHISEE agrees on behalf of itself and its affiliates, that it will not while this MOU is in effect, (whether itself or together without any other person, firm or company in any....
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....ve the exclusive right to change, direct or withdraw the use of such, signs, symbols, motto, designs trademark etc., as it may in its sole discretion decide. 5.3 FRANCHISEE shall always abide by all the instructions and recommendations given by the FRANCHISOR without any demur or objection, during the term of this MOU, regarding the use by the FRANCHISEE of the said Brand name. 5.4 FRANCHISOR would, from time to time, make certain intellectual property rights available as limited license for specified use only. This may cover the entire gamut of intellectual property rights, including but not limited to, its trademarks, copyrighted original works, patents, business models, designs, know-how, etc related to the said Brand name. This may be made available by the FRANCHISOR to the FRANCHISEE for the proper and intended use in furtherance of the present MOU being entered between the Parties. It is stipulated that the same would be used only as determined between the Parties, and in furtherance and fulfillment of the objectives of the MOU and in no other way. 5.5 Any violation of this provision shall make the FRANCHISEE liable to appropriate action against it,....
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....ks to be created as part of performance of this MOU. For the purpose of this Clause, property would include, without limitation, all material, data created by FRANCHISEE as part and result of any action taken by FRANCHISEE on behalf of the FRANCHISOR and/or in performance of the present MOU. 5.10 Any rights assigned to FRANCHISOR under the above Clauses shall not be deemed to have lapsed if FRANCHISOR fails to exercise the assignment of these rights within one year of the creation of Property, or otherwise. 5.11 Without limiting the generality of the foregoing, the FRANCHISEE specifically waives forfeits, relinquishes and abandons all claims of "moral rights", attribution and/or integrity as to the data and other original creatives, created as a result of the present MOU between the Parties; and conveys the same to FRANCHISOR without reservation or limitation. The FRANCHISEE agrees to execute all paperwork as may be required for it to successfully waive, forfeits relinquish and abandons and its claims or rights under the provisions of this MOU. 5.12 Upon request, the FRANCHISEE agrees to assist the FRANCHISOR or its nominee (at its expense) during and at ....
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....as made applicable by FRANCHISOR. v. FRANCHISEE shall send all advertising material, fact sheet etc. for prior written approval of FRANCHISOR before printing, distribution and usage of the same. vi. On all advertisements and promotional material etc. as approved by the FRANCHISOR it shall be mandatorily stated that "under the aegis to G.D. Goenka School, Delhi". 16. FRANCHISEE FEE AND ROYALTY 16.1. That FRANCHISEE upon the execution of this MOU shall pay to FRANCHISOR a sum of Rs. 1,00,00,000.00 (Rupees One crore only) in the name of FRANCHISOR, as onetime non-refundable FRANCHISEE fee. 16.2. Any tax or statutory obligation in the nature of Service tax or similar tax, attached to this shall be borne by FRANCHISEE and shall be reimbursed to FRANCHISOR, in case the payment of such statutory taxes is to be charged and paid by FRANCHISOR. 16.3. The one time non-refundable Franchisee fee as per para 16.1 and 16.2 of this agreement has already been paid by FRANCHISEE to the FRANCHISOR. 16.4 That FRANCHISEE shall pay a Royalty of 12% (Twelve percent) to FRANCHISOR against use of the said Brand name on the collection of Revenue....
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....E fails to maintain and upgrade the School as per the technological and other developments at par with other FRANCHISOR Schools. 17.3.2 That there is evidence that FRANCHISEE has misled the FRANCHISOR on account of collection of revenue. 17.3.3 That the FRANCHISEE fails to make the School operational within the stipulated period as per the terms of the MOU. 17.3.4 That FRANCHISEE fails to adopt or implement the policies and procedures as directed by FRANCHISOR. 17.3.5 Any other reason suggesting deviation from the policies of FRANCHISOR or there is sufficient evidence damaging the image and Brand of FRANCHISOR. 17.3.6 That FRANCHISEE carries out any illegal activity as per the laws of the Government of India. 17.3.7 If FRANCHISEE shall dissolve, become bankrupt, insolvent, cease transaction of business, commit any act of bankruptcy reorganization, composition, or arrangement, then this MOU may be immediately terminated by the FRANCHISOR. 17.3.8 THAT the FRANCHISEE fails to submit details of the revenue for calculation of the Royalty amount and/or non-payment of Royalty amount to the FRANCHISOR as per the terms and condi....
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..... The FRANCHISEE shall at its own expense return to the FRANCHISOR forthwith upon termination or earlier determination of the MOU all information, whether confidential or not, documentation data, documentation data, materials etc. in its possession belonging to the FRANCHISOR together with any copies thereof or any other documents, data material entrusted to the FRANCHISEE by the FRANCHISOR or which may have come in the possession of the FRANCHISEE during the term of the MOU. 17.10. That FRANCHISEE shall forthwith upon receipt of the termination Notice or earlier determination and not later than 24 hours from the receipt of the same render accounts to the FRANCHISOR along with the up to date records. Provided up till 12 months after the termination of the MOU and upon the request of the FRANCHISOR the FRANCHISEE shall cooperate with the FRANCHISOR and hand over for inspection the relevant books of account of the FRANCHISEE in order to verify the calculation of the Royalty, whether paid or payable by the FRANCHISEE and the payment of compensation as stated under Clause 17.8. FRANCHISOR shall be entitled to injunctive and equitable relief for any violation of the te....
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....tores, waste or byproducts, or any other goods of a similar nature or any unserviceable or obsolete or discarded machinery or any parts or accessories thereof or any waste or scrap or any of them or any other transaction whatsoever, which is ancillary to or is connected with or is incidental to, or results from such trade, commerce, manufacture, adventure or concern, works contract or lease, but does not include any activity in the nature of mere service or profession which does not involve the purchase or sale of goods." "(h) "dealer" means any person who carries on in Uttar Pradesh (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods directly or indirectly, for cash or deferred payment or for commission, remuneration or other valuable consideration and includes, - (i) a local authority, body corporate, company, any co-operative society or other society, club, firm, Hindu undivided family or other association of persons which carries on such business; (ii) a factor, broker, arhati, commission agent, del credere agent, or any other mercantile agent, by whatever name called, and whether of the same desc....
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....n or warehouse who stores commercial goods, other than those of transporters except those referred to in sub-clause (ix); Provided that a person who, not being a body corporate, sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant, lessee or otherwise, or who sells poultry or dairy products from fowls or animals kept by him shall not, in respect of such goods, be treated as a dealer." "(m) "goods" means every kind of class of movable property and includes all materials, commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to, or fastened to anything permanently attached to the earth which, under the contract of sale, are agreed to be severed, but does not include actionable claims, stocks, shares or securities." "(q) "lease" means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another (whether or not for a specified period) for cash, deferred payment or other valuable consideration without the transfer of ownership a....
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....eemed to be sale of those goods by the person making the delivery, transfer or supply and a purchase of those goods by the person to whom such delivery, transfer or supply is made." (emphasis added) 11. The definition of "sale on goods" was incorporated in VAT Act, 2008 in the light of definition of tax on sales or purchase of goods as contained under Article 366(29A) of Constitution and it would be appropriate to refer the same also hereunder: (29-A) "tax on the sale or purchase of goods" includes-- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of pers....
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....State trade or commerce, into a 'sale' inside the State. Interpreting Article 366 (29-A) (a) to (f) of Constitution, Court by majority held: (a) Sub- clause (a) to (f) of clause (29A) of Article 366 are not actual sales within the meaning of sale but are "deemed sales" by legal fiction created therein. (b) Where situs of sale has not been fixed or covered by any legal fiction created by appropriate legislature, location of sale would be the place where property in goods passes. (c) Where a party has entered into formal contract and goods are available for delivery irrespective of place where they are located, the situs of such sale would be where the property in goods passes, namely, where the contract is entered into. (d) Transfer of goods will be a deemed sale in the cases of sub-clauses (a) and (b), the delivery of goods will be a "deemed sale" in case of sub-clause (c), supply of goods and services respectively will be "deemed sales" in the cases of sub- clauses (e) and (f) and transfer of right to use any goods will be a "deemed sale" in the case of sub-clause (d). Clause (29A) cannot be read as implying that tax under sub-clause (d)....
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....re by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer of right to use any goods would be the place where the property in goods passes, i.e. where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use any goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. (e) The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is deemed sale within the meaning of legal fiction engrafted in clause (29A) (d) of Article 366 of the Constitution wherein the location or delivery of goods to put to use is immaterial." (emphasis added) 15. C....
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.... Article 366 (29A) of Constitution read with Section 2(ac) of VAT Act, 2008. There are certain transactions which normally would not have come within the ambit of term "sale" or "purchase" but due to legal fiction provided by legislature by amending Article 366(29A) of Constitution, such transactions have been included within the term "sale". A "transfer of right to use any goods" for any purpose for valuable consideration is one of such legal fiction brought within the ambit of "sale". 19. Learned counsel for petitioner relied on a three Judge judgment in Bharat Sanchar Nigam Ltd. and another (supra) wherein Court considered following questions: "A) what are "goods" in telecommunication for the purposes of Article 366 (29A)(d)? B) is there any transfer of any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber? C) is the nature of the transaction involved in providing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element? D) If the providing of a telephone connection involves sale is such sale an inter state o....
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.... term "property". When we talk in terms of "sale" it would mean transfer of ownership in goods but in the context of "deemed sale" under Article 366(29A) of Constitution, it will include "transfer of right to use ownership in goods". 23. In the context of sale of lottery ticket, Constitution Bench in Sunrise Associates (supra) held that a lottery ticket, if sold, by itself does not involve sale of goods, like purchase of railway tickets which gives right to a person to travel by railway. It is nothing other than a contract of carriage. The actual ticket is merely evidence of the right to travel. A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance or damages would lie. Same is the position in respect of a ticket to see cinema or a pawn brokers ticket or memoranda or contracts between vendors of tickets and purchasers. Therefore, in order to hold a lottery ticket to be "goods" it can be only if there is a transfer of rights. Court said that on purchase of a lottery ticket, purchaser has a claim of conditional interest on prize money which is not in purchasers possession. A lottery having been held ....
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....shed from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction." 25. In the light of above observations we find that nature of transaction in the present case is different and hence judgment in Bharat Sanchar Nigam Ltd. and another (supra) does not help petitioner to exclude liability of VAT under VAT Act, 2008. 26. The judgment in State of A.P. Vs. Rashtriya Ispat Nigam Ltd.(supra) relied by petitioner also does not help it for the reason that a finding of fact was recorded therein that transaction between parties did not involve transfer of rights to use machinery by contractors and in absence of same sale tax was not leviable. The said judgment, therefore, has no application to the facts of present case. 27. When exposition of law discussed above is applied in the context of transfer of right to use goods relating t....
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....wo concepts are different. A distinction must be kept in mind when considering use of word in connection with sale of goods. It quoted from Dictionary of Commercial Law by A. H. Hudson (1983 Edn.), which reads as under: "`Property' -- In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods. Hence, when used in the definition of "goods" in the different sales tax statutes, the word "property" means the subject-matter of ownership. The same word in the context of a "sale" means the transfer of the ownership in goods." 31. Court held that import licence has its own implicit value and purchasable on payment of consideration for its value, therefore, satisfy the definition of 'goods' within the meaning of "sales tax" laws and is exigible to tax. 32. Another recent judgment is in State of Karnataka and others Vs. Pro Lab and others, 2015(8) SCC 557. Court said that dominant intention test has already been overruled. It has noticed, if a transaction has two component, one sale of goods and another service, on the ....