TaxTMI 
TaxTMI 
2014 (9) TMI 1147
X X X X Extracts X X X X
X X X X Extracts X X X X
....s brand franchisee fee from the Beer Contract Bottling Units (CBUs) and has; (b) confirmed the levy of tax, penalty and interest on the amount received as royalty from the licensees who are engaged in the business of packaged mineral water as consideration received for transfer of right to use the trade-mark of the appellant. Thus, the FAA while allowing the appeals in part has modified the reassessment orders dated 3-3-2011 for the tax periods of 2005-2006, 2006-2007, 2007-2008, 2008-2009 and 2009-2010 and reassessment order dated 15th July, 2011 for the tax periods of 2010-2011 concluded under Section 39(1) of the Act by the Deputy Commissioner of Commercial Taxes (Audit-61), VAT Division-6, Bangalore (hereinafter referred to as 'Assessing Authority' or for short as 'AA'). The FAA while deleting the levy of tax, penalty and interest on sale turnover of (a) on brand franchisee fee in case of Beer Contract Bottling Units (CBUs) and; (b) on spent grains has issued directions to the AA to issue revised demand notice so far as the tax penalty and interest affirmed in case of only 'Kingfisher' Trademark, wherein the FAA has decided that there is transfer of righ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 4 of the Act. This issue has been answered in favour of the appellant by the FAA by holding that there is no deemed sale of the trademark after analysing all agreements. (b) Payments from licensees with whom agreements were entered for manufacture and sale of drinking water, towards royalty as sales liable to tax under Section 4(1) of the Act. 3. Grounds of appeal.-- (i) The appellant assails the appellate order in upholding the levy of tax on royalty which is realised from the licensees who have entered into agreements namely technical know-how agreement and licence agreement. It is submitted that such type of agreements are entered with various dealers in each of the impugned financial years. The copy of the said agreements are furnished as Annexures-A and B and in the written submissions, the details of the industries with names are also furnished. The industries with whom agreements have been entered are referred to as the licensees. The first ground is that the royalty has been received in terms of technical know-how agreement and licensee agreement which are tow separate written agreements entered with each and every licensees. There is nothing e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s is not a sales consideration as per the law laid down in the case of State of Orissa and Others v. Titaghur Paper Mills Company Limited and Another (1950-2004) 4 SCST 4525 : AIR 1985 SC 1293 : 1985 Supp. SCC 280 : (1985) 60 STC 213 (SC). (vi) In the sixth ground, the appellant also submits that its main and sole line of business is that of brewing/manufacturing and sale of beer and the brand name/trademark 'Kingfisher' owned and held by it is nothing but its business assets. Even if it is assumed that there is exclusive transfer of right to use the said brand name/trademark, such transfer of right to use of brand name/trademark vis-a-vis deemed sale is not in the course of business of manufacture and sale of beer nor it is incidental or ancillary to the business of manufacture and sale of beer. In this regard, the appellant relies on the decisions of our Hon'ble High Court in the cases of Kwality Biscuits (Private) Limited, Bangalore v. State of Karnataka 2011 (71) Kar.L.J. 16 (HC) (DB) : (2011) 53 VST 66 (Kar.) (DB) and Ciniplex Private Limited v. State of Karnataka 2012 (73) Kar.L.J. 463 (HC)(DB), the said deemed sale of brand name/trademark cannot be subje....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (iv) It has been submitted that the FAA has overlooked the judgments cited by the AA in case of intangible goods namely S.P.S. Jayam and Company v. Registrar, Tamil Nadu Taxation Special Tribunal and Others (2004) 137 STC 117 (Mad.) and Commissioner of Sales Tax v. Duke and Sons Private Limited (1999) 112 STC 370 (Bom.). The contention of the State is that the decisions of the Hon'ble Supreme Court cannot be followed in case of intangible goods. It is also submitted that the AA has distinguished between tangible and intangible goods which is not answered by the FAA in the impugned appeal order. (v) It has been contended that the it is not correct to follow the law laid down by the Hon'ble High Court of Karnataka in Kwality Biscuits and Ciniplex Private Limited's cases. It is submitted that the above case-laws are applicable only in the case of one-time transaction whereas, the appellant has entered into an agreements with several CBUs all over the country and such business cannot be construed as one time transaction. In this regard, the decision of Hon'ble Apex Court in State of Tamil Nadu and Another v. Board of Trustees of the Port of Madras 1999 (46....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s paragraph 5 of the recital which clearly specifies that M/s. UBL (appellant) is to market the beer manufactured by M/s. BDL or through its nominees. The inference therefore would be that the permission granted to M/s. BDL to affix the labels printed with the brand names Kingfisher Lager Beer, Kingfisher Super Strong Premium Beer and Kalyani Black Premium Lager Beer on the beer bottles manufactured by the CBU did not serve any use or purpose, in real terms, to M/s. BDL. In other words, such permission was not at all of beneficial use to M/s. BDL. The word 'use' as per the dictionary meaning being 'as a means of achieving a purpose'. (iv) The appellant by pointing out Clause 1.15 wherein 'Registered User Agreement' has been defined to mean 'permitted use' of the trademarks of UBL by BDL and not amounting to transfer of right to use the trademarks. (v) Relying on Clause 2.2, it has been urged that the dominant object of the agreement is to provide technical know-how by the appellant-M/s. UBL to M/s. BDL for manufacture of beer and marketing of the manufactured beer. The BDL has been permitted to affix the labels with the brand names ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red with BDL as per Clause 7.4 and the appellant is responsible for marketing of beer which has been spelt out in Clause 16 of the agreement. On the above basis, the sum and substance of the agreement is elucidated as under: (a) As per the title itself, the agreement is for brewing and distribution of beer. The agreements are not for right to use the brand names belonging to the appellant. There is no transfer of brand names to the CBUs independently to manufacture and market the beer. (b) The dominant object of the agreement is that the CBUs have to manufacture beer in the brand names of the appellant using the technical know-how provided by the appellant and the binding advice in the procurement of inputs and raw materials. Even supervision and control is exercised over the process of manufacture of beer and effective assistance in marketing of such manufactured beer. (c) The buyback of the entire quantity of beer manufactured by the CBUs or by its nominees clearly proves that there is compulsion on the part of the CBUs to sell beer to M/s. UBL, the appellant or to its nominees. (d) The only payment received is marketing fee realised in the for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the UBL i.e., appellant at Rs. 10/- per case is nothing but marketing fee and it is not at all a consideration for the transfer of right to use any trademark or brand name or for any service provided towards Intellectual Property Rights (IPR) and it is for the permission granted to use of the labels printed with the brand names of the appellant onto the beer bottles. In addition to this, the appellant as respondent in the cross appeals submits that the appellant has admitted the marketing fee received for the purpose of service tax payable under Finance Act, 1994. In this regard copies of the Form ST-3 are also furnished to prove that marketing fee has been offered to service tax under IPR services. The learned Counsel for the appellant heavily relies on the following judgments: (1) Judgment of the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Limited and particularly on paragraphs 96, 97, 98 and 99 of the said judgment the same is advanced during the arguments also. (2) Judgment of our Hon'ble High Court of Karnataka in the case of Indus Towers Limited, Bangalore v. The Deputy Commissioner of Commercial Taxes, Enforcement I, South Zone, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive submitted that the trademark is intangible goods and the decision of the Hon'ble Supreme Court rendered in Rashtriya Ispat Nigam Limited's case cannot be applied as the same relates to tangible goods namely machinery in the said decision. The learned State Representative also highlighted the fact that the AA has distinguished this case in his order and has also relied on Vikas Sales Corporation and Another v. Commissioner of Commercial Taxes and Another (1950-2004) 3 SCST 3186 : AIR 1996 SC 2082 : (1996) 4 SCC 433 : (1996) 102 STC 106 (SC). It is urged that the agreements entered by the appellant namely UBL with the CBUs is for the transfer of exclusive right to use the trademark and hence exigible to tax under the Act as per Section 4(1)(a) of the Act at the rates prescribed for the trademarks under Third Schedule of the Act (4% or 5% as the case may be during the impugned tax periods of financial years). 9. Perused the lower Court records. The common question of law and facts are involved in all these appeals and hence the same are clubbed together and disposed of by this common judgment. After careful perusal of the records, the following points arise for our con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation is received is nothing but marketing fee as economic surplus. As enumerated in paragraphs 7 and 8 supra in this order, the learned Counsel submits that there is no deemed sale of trademark. 13. Per contra, the learned State Representative has reiterated the grounds of cross appeal and has submitted that the brand/franchisee fee received as economic surplus is nothing but sale consideration received for the transfer of right to use the brand name/trademark. It is also urged that the trademark being intangible goods, the FAA has erred in not following the decisions in the cases of S.P.S. Jayam and Company and Duke and Sons Private Limited. In addition to this, strong reliance has been made on Vitan Departmental Stores and Industries case. 14. In order to resolve this issue, it is necessary to analyse the agreements between the appellant-company and the CBUs. In fact, the appellant-company has entered into such contract bottling agreements for the manufacture of branded beer on behalf of the appellant with various brewing units situated outside the State and throughout the country. These agreements are available on the AA's records and the AA as well as the FAA have ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntered into a project agreement dated 11th November 2002 and subsequently, an amendment agreement dated 22nd April, 2003 to take care of certain amendments (the said 'agreements'). In terms of the said agreements, UBL has successfully completed the project. This agreement shall be read as part and parcel of the said agreements. 5. BDL has requested UBL to market the beer produced under UBL's trademarks to be manufactured at the Brewery, either by itself or through its nominee/s as provided in this agreement. 6. UBL has executed a registered user agreement on 3rd September, 2004 with BDL for the use of UBL's trademarks by BDL. 7. BDL is desirous of entering into this agreement with UBL for the purpose of production and bottling of beer under UBL's trademarks as per the specifications and know-how provided by UBL upon the terms and conditions hereinafter contained. It is agreed as follows: 1. Definitions.--In this agreement (including the recitals) the following words and phrases shall, unless the context requires otherwise, have the following meanings: 1.1 'Agreement' means this agreement and any amendments,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red or not, and belonging to UBL. 1.14.2 such further trademarks, names and logos as UBL may from time to time make available to BDL during the term for use in connection with the manufacture, marketing and sale of UB beer. 1.15 'Registered User Agreement' the agreement of even date as this agreement between UBL and BDL for the permitted use of the trademarks of UBL by BDL. 1.16 'UB Beer'--Brewery Goods manufactured under the trademarks belonging to UBL. 1.17 'Year'--Each period of 12 calendar months during the terms of this agreement. 1.18 'Beer sold' means cases of beer sold as 12 bottles of 650 ml each in a case or 24 bottles of 325 ml each in a case of beer sold in Kegs. 2. Appointment.-- 2.1 BDL and UBL confirm that there are no legal or contractual impediments to enter into contracts.-- (a) for the manufacture of UB beer by BDL; (b) for providing technical know-how and marketing assistance by UBL to BDL and BDL availing of the same; (c) permitting BDL to use the trademarks belonging to UBL and use of such trademarks by BDL; and (d) generally give ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by UBL, to the Brewer)' for supervising the processing and quality control of the UB Beer manufactured, UBL may also depute a Commercial Executive during the term of this agreement to work in the brewery, BDL shall be responsible for procurement of materials and the Commercial Executive shall assist in advising BDL the contracted rates at which UBL procures materials as also the credit terms supplierwise/materialwise. 3.4 During the term of this agreement technical personnel of BDL may as per BDL's requirement and at BDL's expense and with the written consent of UBL visit the relevant research, development and production facilities of UBL and obtain the relevant know-how practiced, developed or available there. 3.5 UBL agrees to negotiate and finalise with the vendors the terms and quality parameters for purchase of raw, packing and such other materials as may be required for manufacture of UB Beer. BDL agrees to make arrangement for procuring such materials from the vendors selected by UBL on the terms agreed to between UBL and the vendors. In the event of stoppage of production on account of any delay in the supply of such raw, packing and other mate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L's responsibility to notify UBL of any incompatibility between sub-clauses 5.1.1 and 5.1.2 above. UBL reserves the right to alter the specifications and other matters specified above at any time. 5.2 In order to produce high quality and planned production of UB Beer in the brewery, BDL shall put up such manufacturing and quality checking facilities at its cost as may be approved by UB. After the commencement of production if any change or modification is required by UBL, such changes in the manufacturing and quality checking facilities shall be provided by BDL and the cost and the funding thereof shall be mutually discussed and agreed upon between UBL and BDL. 5.3 BDL shall give to such Authorised Officers or representatives of UBL, who are deputed to the Brewery, full access to the Brewery and shall furnish all relevant material and information requested. 5.4 BDL shall, in accordance with the procedure established and under the supervision of UBL, carry out quality control including laboratory analysis of UB beer manufactured and packaged by BDL. Such data shall be submitted to UBL in accordance with UBL's instructions. 5.5 BDL shall se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... BDL shall not use any trademark in respect of such Brewery Goods that are confusingly similar to the trademarks belonging to UBL. 7. Payments.-- 7.1 In consideration of UBL providing the specifications and know-how to BDL for manufacture of UB Beer as per the terms of this agreement, BDL shall sell the entire UB Beer manufactured in the Brewery to UBL or its indenters. In the event of such sale of UBL, UBL will pay to BDL the following cost towards Beer sold: (a) Variable cost which shall include the cost of raw materials, packaging materials and consumables within the mutually agreed standards of consumption/wastages. These norms of wastages/consumption shall be periodically and mutually revised. (b) The retention by BDL towards UB brands of Beer sold to cover the cost of personnel, operating overheads which include energy, electricity, steam, equipment, machinery and utilities costs, interest costs both on capital costs and working capital costs as well as the margin payable to BDL. 7.2 BDL will raise invoices on UBL and/or its indenters in respect of UB beer sold to UBL or its indenters, as the case may be. BDL shall open a current a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....valent act or thing under any applicable law. 9.2.1 Without prejudice to any rights or any claim of damages or right accrued at the date of termination and notwithstanding the provision of Clause 8 and Clause 9, UBL shall have the right to terminate the agreement by written notice in the event of any one or more of the following occurrences taking place: (i) Forthwith.-- (a) If BDL is prevented by any statute or judgment or decree by any Court from manufacturing Brewery goods and/or UB beer or performing any other act under this agreement. (b) If BDL is unable to manufacture UB beer as per Clause 6. (c) In the case of any breach by BDL relating to the trademarks or, if BDL challenges the validity of any registration of the trademarks or of any equivalent industrial or intellectual property rights of UBL. (d) If there is a change in the effective control whether directly or indirectly of the ownership of BDL or UBL. (e) If more than one half of the assets of BDL relating to the production, marketing, distributing and retailing or brewery goods are transferred to a person, company or organisation otherwise than as a resul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l not thereafter use, in any manner, or for any purpose, directly or indirectly, any of the same, or any trademarks or symbols identical to or deceptively similar thereto. BDL shall immediately return to UBL any written embodiment including plates, labels, packaging materials etc., incorporating the trademarks, logos or devices and all other items which comprise the know-how and specifications for brewing and packaging UB beer and shall not howsoever make use of the same after termination or expiration. UBL shall reimburse to BDL the cost of goods service charges of such return of all unused labels, publicity materials, unfinished goods, semi-finished goods and goods in process at landed cost. 9.4.2 The expiration or termination of the agreement will be without prejudice to the rights of the parties antecedent to such expiry/termination nor shall relieve BDL and UBL from any obligations that by their nature survive the expiration or termination of this agreement. 9.4.3 Upon or following the expiry or termination of this agreement, BDL shall cease to manufacture UB Beer under the trademarks and UBL shall forthwith purchase any unsold stocks of UB beer that BDL may ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No assignment.--Except as otherwise provided in this agreement, no party shall without the prior written consent of the other assign, transfer, mortgage, charge or otherwise deal with any of its rights under this agreement. 13. Notices.-- 13.1 All notices, consents, requests and the like required to be given under this agreement shall be in writing and shall be sent by telex or telefax or courier or registered post A.D. to the registered address of the relevant party or to such other address as one party may notify to the other in writing from time to time. 13.2 Any such telex or telefax shall be deemed properly transmitted and received provided that such telex or telefax was duly dispatched to the telex or telefax number of the addressee as notified, and provided that the party sending such notice can produce a valid transmission slip or other proof of despatch. 13.3 Any notice sent by courier shall be deemed properly received upon production of a receipt duly signed by the receiver or their representative. 13.4 If sent by registered post A.D., the notice shall be deemed to have been served on the expiry of seven days from the date of p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DL's cost, specific to a market to which sale is made by BDL, after considering the realisation made in this regard. 17. Miscellaneous.--x x x x x 18. Arbitration.--x x x x x 19. In the event of any disputes arising between the parties with regard to the terms of this Agreement, the same shall be subject to the jurisdiction of the Courts at Bangalore. 15. The agreement between M/s. Balaji Distilleries Limited (BDL) and the appellant-company M/s. United Breweries Limited (UBL) consists of: (a) 07 recitals; (b) 19 agreement clauses and an annexure with details UBL's trademarks. The recitals clearly proves that the agreement is for the purpose of manufacture and packaging of the beer and the product so manufactured by the CBUs remains the sole property of the UBL. This fact is evident....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re always under obligation and compulsion to allow the appellant's technical personnel to inspect the plant and the laboratory department to ensure that the processing or brewing of beer is as per the quality maintained by the appellant-company. Apart from this, the commercial executive and key personnel have to advise the CBUs with regard to the procurement of various raw materials and inputs. These facts are evident from Clauses 3.2, 3.3, 3.4 and 3.5 and Clause 4 dealing with confidentiality envisages all the business and technology related secrets shall not be divulged by the CBUs and any new information obtained during the time of the agreement also belongs to the UBL and not to the CBUs. 19. Clause 5 of the agreement deals with specifications and the sub-clauses running from 5.1.1 to 5.11 clearly mandates that the CBUs have to brew, bottle, package and store the UB Beer in exact conformity with the specification which include all ingredients, raw materials, formulae, processes, methods and standards of quality laid down under the supervision of UBL. Sub-clause 5.1.2 makes it clear that in case of any incompatibility with respect to the manufacture of beer then the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of any kind arising out of consumption of UB Beer which may be attributed to the manufacture of bulk beer. Clause 16 relating to advertising and promotion fixes the responsibility on the appellant-company rather than the CBUs on all matters of marketing, advertising, promotion and distribution. 25. On the above basis, the sum and substance of the agreement could be summarised as under: (i) As per the title itself, the agreement is for brewing and distribution of beer. The agreements are not for right to use the brand names belonging to the appellant. There is no transfer of brand names to the CBUs independently to manufacture and market the beer. (ii) The primary objective of the agreement is that the CBUs have to manufacture beer in the brand names of the appellant using the technical know-how and technology provided by the appellant with the binding advice in the procurement of inputs and raw materials. Even supervision and control is exercised over the process of manufacture of beer and effective assistance in marketing and distribution of such manufactured beer. (iii) The buyback of the entire quantity of beer manufactured by the CBUs or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ixing paper labels. The paper labels inter alia contained the words 'For United Breweries Limited, Bangalore'. The terms and conditions which are present in the recital clearly establish that the permission granted to the CBUs is not to the exclusion of the appellant, the owner and holder of the trademark. Thus, the close reading of the recitals and clauses of the agreement proves that there is no exclusive transfer of right to use the trademark to the CBUs. If, there had been transfer of right to use the trademark to the CBU, then the transferor namely the appellant-company UBL would have been divested of the rights on the trademarks owned by it. 27. Therefore as per the law laid down in the BSNL's case, the transactions involving granting of permission to use brand name/trademarks by the appellant to the CBUs does not constitute as transactions of transfer of right to use brand names and trademarks. In this regard, it is necessary to quote the principles/attributes laid down as Law by the Hon'ble Supreme Court for transfer of right to use goods as per Article 366(29-A)(d) of the Constitution of India that is for the purpose of Section 2(29)(d) of the Act which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble goods. Thus, the law declared by the Hon'ble Supreme Court is squarely applicable in this case. 28. The five fundamental attributes laid down by the Hon'ble Apex Court in BSNL's case at paragraph 98 has to be applied now to see whether there is transfer of right to use the brand name or trademark or deemed sale of the trademark by the appellant-company. 29. When the agreements are read as a whole, it clearly conveys that the appellant-company has granted only permission to use the trademark which means to say it is only the licence to manufacture the beer as per the terms and conditions of the appellant-company. The permission to use the trademark is inevitable as the beer so manufactured is for the appellant-company only as the label clearly stipulates that it is 'For United Breweries only' i.e., for the appellant-company only. In this regard, it is pertinent to note the following paragraphs available in the judgment of BSNL's case of the Hon'ble Apex Court.-- "45. Of all the different kinds of composite transactions the drafters of then 46th Amendment chose three specific situations, a works contract, a hire-purchase contract and a c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is no question of the dominant nature test applying. Therefore, when in C.K. Jidheesh v. Union of India, (2005) 279 ITR 118 (SC), held that the aforesaid observations in M/s. Associated Cement Companies Limited v. Commissioner of Customs, AIR 2001 SC 862 : (2001) 124 STC 59 (SC), were merely obiter and that Rainbow Colour Lab and Another v. State of Madhya Pradesh and Others, 2001 (50) Kar.L.J. 189 (SC), was still good law, it was not correct. It is necessary to note that Associated Cement did not say that in all cases of composite transactions the 46th Amendment would apply". 30. The agreements are of composite nature which involves rendering of services, technical consultancy, monitoring of production and marketing and distribution of the beer manufactured on behalf of the appellant. It is the contention of the AA that there is transfer of right to use the trademark. As per the above law enunciated at paragraphs 45 and 46 mentioned above, it is only in the case of works contract and catering contract, vivisection of contract is permissible. This means with respect to other clauses it is not permissible to disintegrate the contract. Therefore, it is not permissible to separate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no ad idem as to the identity of the goods as the agreement is not for assignment of trademark or for transfer of right to use the trademark. That is there is no concurrence for the purpose of right to use the trademark, when the agreement document as a whole is read it is for Brewing and Distribution. Therefore, the second attribute is absent and as there is no delivery of trademark independently to any of the CBUs for transfer of right to use in the present scenario, the first attribute is also to be considered as absent. Irrespective of the fact that the first and second attributes whether present or not, there is no dispute whatsoever so far as the absence of the fourth and the fifth attributes. 34. It has been argued that the decision of the Hon'ble Supreme Court in Rashtriya Ispat Nigam Limited's case is not applicable to the present appeals on the ground that the theory of control and possession cannot be applied in the present context. It has to be mentioned here that the law declared by the Hon'ble Supreme Court in Rashtriya Ispat Nigam Limited's case as well as in Bharat Sanchar Nigam Limited's case are not context dependent but absolute in applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, the Franchisee's rights are limited. It is bound to sell the products of the appellant-Company. Even while the franchise agreement with one is in force, the company can use the trade mark on their own and can enter into franchise agreement with other parties. The effective control is with the appellant-company during the term of the agreement. We find force in the said submission and the dictum laid down by the Apex Court in BSNL's case will support the plea of the appellant-Company. 43. Even though learned Special Government Pleader for Taxes vehemently submitted that the agreement herein does not contain any service element, we cannot agree. Clause 4 of the agreement is under the heading "Support from Malabar Gold". They are providing various services as mentioned therein including feasibility studies for the showroom, project plan for setting up the showroom, selection of site, design of interiors, etc. etc. Clause 5 also is important in understanding the said aspect. In the light of the above discussion, we are unable to hold that the provisions of the KVAT Act as referred to by the learned Special Government Pleader for Taxes, will apply herein, as the tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... light of the principles stated in para 98 of the judgment in BSNL's case, the provisions of the agreement, especially clauses (3) and (5) will show that the franchisor retains the right, effective control and possession and it is not a case of transfer of possession to the exclusion of the transferor. We notice that under clause (12) the franchisee has no right to sub-let or sub-lease or in any way sell, transfer, discharge or distribute or delegate or assign the rights under the agreement in favour of any third party, which is also significant. On termination of the agreement also, going by Clause 25.3, the franchisee shall forfeit all rights and privileges conferred on them by the agreement and the franchisee will not be entitled to use the trade name or materials of "Malabar Gold". Merely because, going by Clause 18, the franchisee is not an agent, it will not get any other exclusive right. 46. Since this Court in the two judgments relied upon by the learned Special Government Pleader, viz. Jojo Frozen Foods (Private) Limited v. State of Kerala, (2009) 24 VST 327 (Ker.) and Kreem Foods Private Limited v. State of Kerala, (2009) 24 VST 333 (Ker.), had no occasion to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....said that there are goods deliverable at any stage which is the test laid down by the Apex Court in paragraphs 78 and 79 of BSNL's case and for that reason also, there is no transfer of right to user at all. Coupled with the same, is the fact that during the period in question the franchisee is having the right, it is not to the exclusion of the franchisor and as it is seen that even during the period during which the transaction is going on, the franchisor can again transfer the right to others, the tests laid down in sub-paragraphs (d) and (e), under para 97 of BSNL's case are not satisfied". 36. Relying on the said decision namely Malabar Gold Private Limited's case and as per the terms and conditions of the agreement in the instant case which are similar in nature, it has to be decided that there is no transfer of right to use or no deemed sales by the appellant as there is no deliverable goods. The FAA has deliberated on the above aspects in detail under the reasons at pages 28 to 31 in the impugned order. The reasoning assigned is correct and therefore it has to be held that the FAA is correct in deciding the issue relating to the deemed sale of trademarks to C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the franchisor. Whereas in the instant case conversely as per Clause 9 which deals with termination and sub-clause 9.4.3 creates obligation on the appellant-company to make payment to the CBUs with respect to the unsold stock of UB Beer as per the transfer price for such products. Similarly sub-clause 9.4.1 creates obligation on the appellant-company for reimbursement to the CBUs towards the cost of goods and service charges on the return of all unused labels, publicity materials, unfinished goods, semi-finished goods and goods in the process at landed cost. Thus contrary to the Vitan situation, the obligation upon termination or expiration of the agreement lies on the appellant-company namely M/s. UBL. Therefore, the case-law relied by the State cannot be applied in the instant case for two reasons, the first one being that all the five fundamental attributes laid down as law by the Hon'ble Supreme Court in the BSNL's case are not satisfied and the second reason being that the holistic reading of all the recitals and the clauses of the agreements entered by the UBL with the CBUs clearly proves that there is no transfer of right to use the trademark but the agreements is f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....soever. It never conveys, by itself, an interest in property. It merely enables a person to do that which he could not otherwise do, except unlawfully. 69. An exclusive licence is a leave to do a thing, and a contract not to give leave to anybody else to do the same thing. It confers no interest, or property in the thing but only makes an action lawful, which, without it, would have been unlawful. A licence is a permission to do something that would otherwise be unlawful. 70. The right conferred by the assessee on the mobile operator is in the nature of a personal right granted to him to do something upon the passive infrastructure belonging to the assessee. It does not amount to creation of an interest in the passive infrastructure itself. It is purely a permissive right and is personal to the grantee. The licence has no other effect than to confer a liberty upon the licensee to go upon the land which would otherwise be unlawful. A dominant legally creating leave and licence in favour of the licensee cannot create encumbrance on the immoveable property for the simple reason that whenever the licence is created in favour of the licensee, the licensee is always tre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s amended to bring within its fold such transactions which are styled as deemed sales. Therefore, in deciding whether a transaction falls within Article 366(29-A)(d) so as to constitute a deemed sale, the purpose of the 46th Amendment, the mischief sought to be remedied and the object sought to be achieved by the said provision cannot be lost sight of. In that background, in the facts of this case, if we look into the various terms of the agreement it is clear under the contract, the assessee has not transferred any right in the passive infrastructure to the mobile operators. The right that is conferred on the mobile operator is a permission to have access to the passive infrastructure, a permission to keep the active infrastructure in the site belonging to the assessee, a permission to mount the antennae on the tower erected by the assessee and to have the benefit of a particular temperature so as to operate the equipments belonging to the mobile operator. No sale of goods or transfer is involved in the transaction in question. Therefore, it does not fall within the mischief of Article 366(29-A)(d) of the Constitution as held by the learned Judge as well as the Assessing Authority....
X X X X Extracts X X X X
X X X X Extracts X X X X
....larly in case of copyrights, the Copyright Act, 1957 has to be looked into and in case of patents, Patents Act, 1970 has to be looked into. In the TM Act, Section 2 is the Definitions Section. The relevant clauses necessary for these appeals are reproduced hereunder: "2. Definitions and interpretation.--(1) In this Act, unless the context otherwise requires.-- ............ (b) 'Assignment' means an assignment in writing by act of the parties concerned; ........... (r) 'Permitted use' in relation to a registered trademark, means the use of trademark.-- (i) by a registered user of the trademark in relation to goods or services.-- (a) x x x x (b) x x x x (c) for which is registered as registered user; and (d) which complies with any conditions or limitations to which the registration of registered user is subject; or (v) 'Registered proprietor' in relation to a trademark, means the person for the time being entered in the register as proprietor of the trademark; ......... (x) 'Registered user' means a person who is for the time being regi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat it is the registered proprietor who is deemed to have used the trademark for the purposes of the TM Act or under any other law. Secondly, as per Section 50(1)(d) of the TM Act, the Registrar can cancel the Register User Agreement suo motu on the ground that the trademark proprietor is not supervising and controlling the quality of goods or services. Such being the case, there cannot be transfer of right to use the trademark in case of permitted use as registered users. Therefore on this ground also, it has to be decided that there is no deemed sale or transfer of right to use the trademarks of the appellant-company to the CBUs. On this count also, it has to be held that the FAA is correct in allowing the appeal in part and the cross appeals making prayer to restore the orders of the AA so far as levy of tax on the trademarks as deemed sale cannot be accepted. 44. In addition to the above, the reliance is also placed on the judgment of the Hon'ble Madras High Court rendered in the case of AGS Entertainment Private Limited, in arriving at the conclusion that there is no deemed sale of trademarks by the UBL to the CBUs. The Division Bench of the Hon'ble Madras High Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed area for limited period, the Producer retains the original copyrights. The sale of goods can be said to have taken place only when the producer relinquishes his right and title over the goods; but when he keeps grip over the goods transferred for temporary use or enjoyment on certain terms and conditions. When the transactions are not 'Sale' or 'deemed sale' the same cannot be brought under Entry 54 of the List II or Entry 92-A of List I". 47. Thus in the AGS Entertainment Private Limited's case, it has been decided that permission to use the copyright is not sale or deemed sale for the purposes of Sales Tax Act or VAT Act. By applying the same ratio in the instant case, it has to be decided that as there is only permission to use the trademark and in view of the fact that the transactions falls under Finance Act, 1994, the trademark has not been transferred by the appellant to the CBUs as right to use and thus there is no deemed sale for the purposes of the KVAT Act, 2003. 48. It has to be noted that the law declared by the Hon'ble Supreme Court in Bharat Sanchar Nigam Limited's case by laying down five fundamental attributes for the purposes o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to this, as discussed under Point No. 2, the facts are same in case of granting permission to use the trademark 'Kingfisher' by the appellant-company to several water bottling units and the decisions relied therein are squarely applicable here also. In view of above detailed discussion, Point No. 3 is answered in the negative. Point No. 4.--Point No. 1 is answered in the affirmative by upholding the impugned appellate order so far as allowing the appeals in part, after due analysis of factual matrix and by following the law declared by the Hon'ble Supreme Court in BSNL's case and also following the principle of control and possession laid down as dictum in Rashtriya Ispat Nigam Limited's case and also following the decision of the Hon'ble High Court of Kerala in Malabar Gold Private Limited's case. As Point No. 2 is answered in the negative by following the decision of our Hon'ble High Court in Indus Towers Limited's case and also following the decision of the Hon'ble Madras High Court in AGS Entertainment Private Limited's case and also after analysing the provisions of Trademarks Act, 1999 and the provisions of the Finance Act, 1994....