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2014 (1) TMI 1837 - AT - VAT and Sales TaxTaxability - brand/franchise fee - transfer of right to use - royalty. Whether, the FAA is correct in deciding that brand franchise and technical fees realised by the appellant from beer Contract Bottling Units (CBUs) are not transactions of transfer of right to use brand name/trade mark and such transactions fall outside the purview of the Act and hence not exigible to tax? - Held that: - The franchise fee received by the appellant is nothing but the licence fee and does not involve any transfer of right to use the brand name or trade mark - From the close reading of the all the clauses and sub-clauses of the agreement between the appellant and the CBUs confirms the fact that it is only the permission in the nature of licence to use the brand name or trade mark for which the franchise fee is received which is being reflected in the financials. Therefore, there cannot be any doubt to come to the conclusion that there is no transfer of right to use the brand name/trade mark of the appellant by the CBUs. The brand name of the appellant has been given simultaneously to other CBUs also which by itself proves that there is no transfer of right to use the brand name exclusively by any specific CBU - the brand franchise and technical fees realised by the appellant from beer contract bottling units are not transactions in the nature of transfer of right to use brand name/trade mark and the same is purely a service simpliciter which falls outside the purview of Section 2(1)(t)(iv) of the KST Act, 1957 - answered in the affirmative. Whether, the State has established in the cross appeals that the impugned orders of the FAA is incorrect? - Held that: - the ownership of the brand name always wrests with the appellant only - the levy of tax by the AA on franchise fee and technical fee has to be held as incorrect and this Bench comes to the conclusion that the FAA is correct in deciding the said issue while allowing the appeal in part - the cross appeals of the State fails and liable to be dismissed - answered in the affirmative. Whether, the FAA is correct in deciding that the royalty realised by the appellant amounts to transfer of right to use the brand name "Kingfisher' to the licensees to manufacture and sale of packaged water with that brand name? - Held that: - The clauses present in the licence agreement relating to the use of brand name to manufacture package drinking water, Clauses 1, 2, 4, 5, 6, 7, 11, 12, 13 and 15 clearly establishes that at any point of time, the brand name 'Kingfisher' has not been assigned exclusively to the licensees. Furthermore, it is to be noted that the appellant has not done in the main line of business i.e., manufacture and sale of beer and package drinking water and even not that of sale of its business assets. Therefore by any stretch of imagination to hold that the agreements entered by the appellant with the licensees involved transaction of deemed sales falling under Section 2(1)(t)(iv) of the Act, in the absence of any activity in the lines of business carried by the appellant cannot be held incidental or ancillary to the main lines of business - answered in negative. Appeal allowed in part.
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